84 entries from February 2012

February 29, 2012

Most older workers (65 percent) say they would ideally like to include some form of work in their retirement, according to a 2011 Harris Interactive survey. But only 4 percent of the survey respondents want to work full time in retirement. A quarter of older workers would prefer to work part time in retirement, and 36 percent want to go back and forth between periods of work and leisure.

Most of us would like to enjoy some time away from the hustle of the working world. And, yet, work does have positive aspects. Wouldn’t it be nice to have the best of both worlds, with time to enjoy retirement as well as time dedicated to work?

Part-time retirement also allows you to address one of my biggest retirement fears, which is becoming bored as a retiree.

Part-time retirement also allows you to address one of the biggest retirement fears most people have, running out of money.

In the past, there was retirement and early retirement. Now it appears that these are joined by part-time retirement (still working part-time after 65) and early semi-retirement (working part-time but doing it before the normal, "traditional" age of retirement.) Lots more choices these days, huh? Or perhaps they were always choices -- we're just seeing more people take advantage of all the options.

Personally, I am currently focusing on early semi-retirement that goes on well past retirement age (which I guess is then called part-time retirement.) ;-) Anyway, here's what I'd like to do over the next 20-30 years:

Work full-time for several more years, saving a ton of money and getting my last big pre-retirement cost out of the way -- college for my kids.

Shift into early semi-retirement -- earning enough to live on, so I don't need to withdraw any of my retirement savings. This will allow my savings to keep growing for many additional years. (Finding a part-time job that earns me enough to live on should be easy for two reasons: 1) We spend/live on well less than what I make every year and 2) at some point, my wife may want to go back to work as well.)

Eventually, I probably won't be able to work even if I want to. As this becomes evident, then I can shift to living on my retirement income. While I know that I will be able to withdraw principal as well as earnings, I hope that we can have enough by that date to simply live on the retirement savings income. Obviously it all depends on how much we save in the meantime, how it grows, and the sort of income we can generate on the savings.

Bonds (and other forms of income-generating investments) are yielding very low rates. Duh!

As a result, Americans are plowing a ton of money in high-dividend stocks and mutual funds.

While doing this can result in a better yield for those needing income, it also comes with extra risks (mainly, the underlying assets can lost their value.)

In other words, a dividend-paying stock isn't the same thing as a bond -- in many different ways.

Given the above, the WSJ suggest four tips for investing in high-dividend stocks and mutual funds as follows:

Diversify your income sources. To limit stock-related risk and boost income, plan to get income from a mix of bonds, as well as dividend-paying stocks.

Own some stocks just for growth. Most investors—even those who already have entered retirement—need the capital appreciation that stocks can generate to reduce the risk of outliving their assets.

Be mindful of fund costs.

Be sure you're comfortable with overseas exposure. One classic strategy for income-oriented investors—and the funds that cater to them—has been to blend U.S. stocks with European stocks, since the latter historically have had higher yields.

These seem like pretty common sense tips to me. Of course you would never want to put all your eggs in one basket -- especially one that's low on growth, expensive, and subject to either default or large drops.

But what if you found a group of stocks that had lots of room for appreciation, were relatively safe, and had high yields? Something like maybe the Dogs of the Dow?

The Dogs of the Dow is an investment strategy popularized by Michael B. O'Higgins, in 1991 which proposes that an investor annually select for investment the ten Dow Jones Industrial Average stocks whose dividend is the highest fraction of their price.

Proponents of the Dogs of the Dow strategy argue that blue chip companies do not alter their dividend to reflect trading conditions and, therefore, the dividend is a measure of the average worth of the company; the stock price, in contrast, fluctuates through the business cycle. This should mean that companies with a high yield, with high dividend relative to price, are near the bottom of their business cycle and are likely to see their stock price increase faster than low yield companies. Under this model, an investor annually reinvesting in high-yield companies should out-perform the overall market.

The logic behind this is that a high dividend yield suggests both that the stock is oversold and that management believes in its company's prospects and is willing to back that up by paying out a relatively high dividend. Investors are thereby hoping to benefit from both above average stock price gains as well as a relatively high quarterly dividend.

In other words, on January 1 you buy the top 10 Dow stocks with the highest yield. You hold them for a year and rebalance (sell those off the next year's list and buy new ones on the list) each January 1. Supposedly, this will net you a better TOTAL (appreciation plus dividends) return. Whether or not this actually happens is up for debate.

The highest of these yields 5.82% and the lowest yields 3.1% (as of the beginning of the year), well better than you can do with many other income-producing assets PLUS these stocks are "supposed to" appreciate. Whether or not they actually do/will is again up for debate.

I must admit that this strategy would tempt me if I needed income (like during retirement.) But I'd have to do a lot more research (and develop an overall investing plan) before I decided whether or not to jump in with the Dogs.

It's going to be hard for us to find a more affordable place to live than where we live now (especially one with better weather.) So I'm thinking if we could keep costs about the same and improve the weather situation, that's a big win. Then again, we might just stay in Michigan but head south in January and February, the heart of winter.

I don't need much "culture" (as I'm sure many of you can tell, but I do want recreational opportunities available in retirement.

Health care availability is one kink in the chain for retiring overseas -- many of the cheapest countries to live in have spotty health care.

Where our kids settle is the big wild card. Will they be in the same city or thousands of miles apart? I don't want to move back to my hometown (too small) or my wife's (not a great location) so the "family" we're most likely to live by would be our kids. We'll see how that plan goes.

Anyone else feeling like there's a ba-zillion decisions to be made before and at retirement? And so many of them have to be made with not much (or changing) information. Seems like it could be a wild ride! ;-)

Why isn't a safe listed, you may be asking? Well, the post notes that thieves don’t have a lot of time when they break in, so they look in the most predictable of places. A safe is pretty predictable.

Here's our situation:

Yes, we keep extra money/cash at home.

It's not a lot -- just enough to tide us over in case of an emergency. I believe we keep around $500 at home.

We keep the money in gold $1 coins. This is just in case there's a fire or water damage, the coins will survive whereas paper money may not.

The money is in our safe (a no-no I guess), but it's not so much that if we'd lose it, we'd be devastated. In fact, I'd rather give someone the money and keep the other things in the safe which are more valuable IMO (passports, birth certificates, etc.)

In addition to the amount we keep at home on purpose, we always have a surplus because we get paid for our refereeing jobs in cash. I actually keep this money in our pantry since it's easily

The problem with hiding money all over the place is that it's all over the place. It's hard enough to keep track of things without adding a treasure hunt when you need extra money to the list.

My parents used to hide money all over the place -- socks in drawers, in coat pockets, etc. Every once in a while, one of them would put on a coat, reach into the pocket, pull out a $50 bill, and say something like, "Oh, I didn't know that was in there." I've told my mom that if anything ever happens to them I'll be combing through everything with a fine-tooth comb. Who knows what I'll find???!!!

Here we go with the first round of Free Money Finance March Money Madness (to follow all the action click on my March Money Madness category link and scroll down to read all the posts involved in this subject.)

I've listed each "game" (one post versus another) in segments along with the wording provided by the author when the post was submitted. I've also listed a keyword after each post title to make it easy to vote (as a made-up example, you can just comment: Game 1: Saving; Game 2: Investing, etc.) Be sure to comment which one you like the best out of each set of two -- you will help determine the winner! Criteria for the best article is somewhat subjective, but you can use these factors as a guide: 1) practicality of the post 2) how interesting/provocative/unique it is, 3) the "personal-ness" of it and 4) its impact on net worth.

Here are today's games:

GAME 23

Study This Strategy Before You Invest in Foreign Stock Markets (Study) - Do you know the major trap when investing your savings in foreign stock markets? These markets can offer great returns. However, they carry an additional risk compared to investing in your domestic stock market. Learn here what this risk is and how you can handle it. It is no rocket science, but you have to be aware of it.

VERSUS

The Double-Standard of Car Buying (Double) - I often hear people say that buying a car is a terrible investment. I have two questions for anyone who says this. 1 - Is a car really an investment? Do you really expect it to appreciate in value? Probably not. 2 - Do you view someone who drives a beat up car as a brilliant investor and congratulate them on their self-control? Probably not.

GAME 24

How an ATM Fee Saved Me $32 (ATM) - Normally ATM Fees are annoying. Who wants to pay somewhere around $2 to access our own money? Yet, in my post I share how an ATM fee ended up saving me $32.

3. I love giving as well and we talk about it frequently here on FMF. She goes into detail giving thought on where to give, how much to give, and so on.

4. Personally, I thought #4 was a bit out of place -- it should be part of #5.

5. For the person just starting out, a budget is a necessity. Plus there needs to be some sort of tracking system like Quicken, Mint, a personal spreadsheet or an "old school" ledger. I have used Quicken for 15 years or so and love it.

6. IMO #6 also isn't so important that it should be listed by itself.

7. I'd rephrase this as either "minimize debt" or "eliminate debt."

If I was to list my money rules for life, I'd pull them from these posts:

Hey, maybe I should write my own "7 money steps" book (though I'm not sure I'd need seven -- I could probably do it in 5 steps or less.)

One thing I'm surprised she didn't mention is earning money. What about growing your career, developing a business, or earning extra on the side? Shouldn't these tips be part of any complete book on making the most of your money?

1. Basic services fee for the funeral director and staff. This includes things like planning the funeral, preparing legal documents, and so on.

2. Charges for other services and merchandise. This includes transportation, embalming, the ceremony, etc.

3. Cash advances. These are fees charged by the funeral home for goods and services it buys from others on your behalf like flowers, an obituary notice, and the like.

The graphic goes on to show that the average funeral cost is $8k to $10k, broken down as follows:

Burial plot: $4,000

Tombstone: $500 - $3,000

Casket: $2,000

Vault: $1,000

It's not clear, but this appears to be the cost just for getting the body buried. They list $2,300 in "hidden costs" like limo, death certificate, burial clothes, etc.

So the total cost is in the neighborhood of $10k (or higher).

Couple thoughts here:

1. If you have a decent emergency fund, then your funeral costs will likely be covered by it.

2. There's a lot you can do to get your costs below $10k. As others have mentioned on previous posts, you could rent a casket, go for a small tombstone, have friends/family do some of the tasks associated with the funeral, and so on. I'm thinking I could get the cost down to $5k, but maybe I'm wrong.

Anyone out there ever had to run/pay for a funeral for someone? What sort of costs did you encounter?

February 27, 2012

It was a pretty quiet day for us on the ship. Here's the quick run-down:

Up at 8:30 am

Breakfast

Played ping pong and a few other games

Lunch

Hit the pool. It was fun because the boat was pitching, making the swimming pool a wave pool.

Took a tour of the bridge. This was part of a 25-person tour set up by our concierge. Very interesting. See the pics below for shots of the tour.

Back to room and packed a bit -- lots to fit into suitcases.

Ate dinner.

Handed out tips to our butler, house keeper, and concierge.

Played shuffleboard on deck and just enjoyed being outside in the warmth knowing we were back to the cold the next day.

Back to the room -- visited on the balcony.

Packed, took showers, and headed to bed.

Wednesday, January 25

Today we got off the ship and headed home.

We decided to carry our own luggage off the ship, so we didn't leave it out last night (which most people do on a cruise -- leave luggage packed and in the hallway for handlers to take off for you). We finished packing it up this morning, then headed to breakfast. Thankfully we could go to Cagney's so we didn't have to deal with the mass of people surging all at once at the buffet.

We had priority disembarkation, so after breakfast we simply took our bags down and went through a side line ahead of all the other passengers waiting to be processed. Again, our status certainly had its benefits.

We made it through customs quickly and hit the street shortly thereafter. We called our shuttle driver (who we had talked to earlier in the day) and he came and picked us up. He then drove us from the port of Miami to the Ft. Lauderdale airport.

Now there's an art to picking your return flights after a cruise, and let's just say we aren't artists.

The art lies in knowing when your ship gets into port and picking a flight after that time that gives you enough time to get to the airport comfortably. The problem is that even though the ship is supposed to be in port at 8 am, sometimes it's late. So do you risk that it will be on time and book an earlier flight or do you play it safe and book later? We played it safe and booked later. And the ship was on time.

This is how we found ourselves at the Ft. Lauderdale airport at 10 am. Our flight to Detroit was set to leave at 3 pm. It arrived at 6 pm. Then our flight to Grand Rapids was to leave at 10 pm and get us home at 11 pm. So at 10 am, we were looking at nine hours of sitting in airports waiting for planes.

But there was good news. A flight to Detroit was open at 11 am. And I was willing to pay the change fee to get us on it. However, there was bad news. There wasn't an earlier flight to Grand Rapids that was open other than the one we had at 10 pm. So we could pay $200 for the privilege of sitting in the Detroit airport for eight hours or so. No thanks.

As a side note, remember that we had debated whether to fly from Grand Rapids or drive to Detroit and leave from there. If we had done the latter, we not only would have arrived at the start of the trip on time (remember we missed our connection) but we would also have been home several hours earlier. Hindsight is 20/20.

Not relishing the wait in the airports, I went into the Delta Club and asked if my new Gold Delta SkyMiles® Credit Card from American Express allowed me to get in (I thought it did, for a fee). Yes, it did, but it would be $25 per person. If I wanted to use the club both in Ft. Lauderdale and in Detroit, I was looking at $200. Yikes!

I asked how much an ANNUAL membership would be. I fly Delta a lot and thought I could use it both now and throughout the next year. For new members it was $500. Yikes again!

I said thanks and started to walk out when the lady said, "You could use points to pay for it if you have enough." Hmmm, I did have enough. I had been accumulating Delta and Northwest (Delta purchased NW and merged the points) points for years and had never redeemed any. Even though I'm not a frequent traveler and don't use a credit card for points, I had accumulated 110,000 points. I paid with 80,000 points (not a great deal for me compared to what I probably could have done with them) and the family was in the Delta Club soon thereafter.

If you've never been into an airline's club, let me just say that waiting in a club is MUCH better than waiting in the general airport area. It's quieter, more comfortable (much better chairs), there is food and drink available (complimentary), and you have access to their web connection (or can use their computers to access the web.) They also have TVs to watch and magazines to read. It's an oasis in the midst of what can be a traveling storm.

Still, the wait was loooooong, but we finally got boarded and took off. Arriving in Detroit at 6 pm, we then headed to one Delta Club, then another (better) one to wait for our next flight.

We visited, ate, drank, and played cards for a couple hours until our flight's take-off time was approaching. Just as we were talking about when we should head to the gate, Delta announced a delay -- until 11:15 pm. Ugh. Thanks again, Delta. You messed up our connection going and now coming back.

So we hunkered down for another hour and a half, then went to our gate. All was smooth from there on out and we got home after midnight. We caught a cab to our place and unpacked a bit before going to bed, exhausted from a day spent sitting in airports. However, we still did have the warm memories of the Caribbean in mind and were living off the high a bit. It was such a great trip overall and we now can't wait to get back soon.

As we end this series, enjoy these pictures from our tour of the ship's bridge. (click images to make bigger)

Remember when I posted about the safe I received from SentrySafe (by the way, I like it and am putting it to good use)? Well, they emailed me recently and wanted to know if I'd look at another one of their safes. I said "sure" and they sent me a new safe a week or so later.

Overall, a very nice safe. It's a top-opening safe that you can pile stuff into. I have had one of these for years and like it. Combined with the front-opening safe they sent me the last time, I can hold all the stuff I need to (passports, birth certificates, etc.) in two different ways.

The safe is very heavy/sturdy too for its size. I guess that's due to it being waterproof and fire resistant. Seems like it could take a hit from a torpedo and still be standing. ;-)

Now here's the good news for you in all of this. They offered to give away one of these safes to an FMF reader. In addition, they'll send you a $25 Walmart gift card so you can fill the safe with needed supplies -- files, holders, and so on. Pretty cool, huh? Here's how the giveaway will work:

1. All you need to do to enter is to leave any comment on this post. Be sure to leave your email address (no one else will be able to see it) when you leave the comment.

2. In a week or so, I'll select the winner at random and announce the winner on this post.

3. I will email the winner, get their contact information, and arrange for them to receive their prize.

I have a bit of dilemma I’m hoping readers can help me with. I purchased a home at the end of 2008, with a rate of 4.75%. I still owe PMI until I’ve reached 20% equity. My area has not seen the worst of the economic downturn, but housing prices have taken quite a dip.

A local bank is offering to refinance with as little as 5% equity, and they would not require PMI. They also have low (for my state) closing costs of $1,800. They have one rate at 20% equity, a little higher at 15%, higher still at 10%, and the highest at 5%. At this point I’ve paid the appraisal ($400), and can walk away if I choose. I’m waiting to see what the valuation is, Zillow estimates 13% equity.

At 10+% equity, the rate would be 4.25%, so rate savings of .5% and no PMI would be worthwhile. Where I could use some advice is the next part.

My friends have started talking about a "new" type of mortgage. It's actually a line of credit that replaces your first mortgage (I only have 1). But confusingly, it’s a still a mortgage product, and interest is tax deductible. The explanation video is pretty clear, and they have a fairly good simulator on their site.

I never understood why, when paying a mortgage the principle is around 20% of my payment. I take it they assume you're going to take the full term and bill you in advance for the interest you would owe. With the line of credit, you only pay interest on the amount borrowed daily. Pretty innovative, although you are giving up a low fixed rate for a variable rate. That's about as much as I understand.

It’s difficult to know where to go from here. The credit line can be for up to 75% of the house. With its variable interest rate, that seems like a lot given I can lock in such a low rate right now. A 50% line of credit and 50% traditional mortgage might make sense. Or perhaps a traditional mortgage at 80% of equity and only using the line of credit to fill in the equity gap and avoid PMI makes more sense. Or I could forget the line of credit altogether. If I blend the products, I will pay 2 closing costs obviously. I’m unsure of how to determine which is the best approach! Unfortunately I’m not great at math either.

The initial motivation was to lock in a lower rate and get rid of PMI, reducing my payments. I have a 791-833 credit score from the 3 agencies. I am not able to pay extra toward the mortgage at this time, and I’d like to decide without assuming I will, but I plan to.

February 26, 2012

Here we go with the first round of Free Money Finance March Money Madness (to follow all the action click on my March Money Madness category link and scroll down to read all the posts involved in this subject.)

I've listed each "game" (one post versus another) in segments along with the wording provided by the author when the post was submitted. I've also listed a keyword after each post title to make it easy to vote (as a made-up example, you can just comment: Game 1: Saving; Game 2: Investing, etc.) Be sure to comment which one you like the best out of each set of two -- you will help determine the winner! Criteria for the best article is somewhat subjective, but you can use these factors as a guide: 1) practicality of the post 2) how interesting/provocative/unique it is, 3) the "personal-ness" of it and 4) its impact on net worth.

Here are today's games:

GAME 21

14 Ways to Outsmart Your Brain to Spend Less (Brain) - Groundbreaking of research in neuroeconomics, psychology, and behavioral economics applied to strategically coach you to simple, practical approaches to change your money story. By changing the meaning you give to various emotional cues, you can understand the reasons you tend to make the same money mistakes – and most importantly, how you can change that.

VERSUS

How Much Do We Need to Save For a Baby? (Baby) - As my husband prepared for our baby girl's arrival last year we spent a lot of time planning and saving. We looked back at everything and share how we were able to start and contribute to our baby fund and what seem to be necessary baby expenses. We want to help parents get ready for their own little one's arrival.

GAME 22

How I Ripped People Off With Store Credit Cards (Ripped) - In high school, I worked after school and on weekends as a cashier at a large retail chain. Despite my working less than half the hours of my full time counterparts, I consistently managed to reach the top of our weekly credit card signups contests. This post outlines my strategy to sell cards and why it was probably a bad idea for most people who signed up.

The enemy is within, the permanent resident in our hearts that is the DNA for all financial failure. It lies dormant until it is awakened by the stimulation of greed. Not many would use the word greed to describe their financial actions. Words like savvy investments, moderate risk, growth positions, and even helping people sound much more commendable.

But in Nehemiah’s time, the day of full disclosure came screeching to a literal stop. The people could be attacked at any moment. They were threatened by an unknown enemy that lurked in the night; they were in danger and worked constantly to build up the exposed and vulnerable places behind their homes, and now, after about a month of this, the bills were due. The real world. You know, the Monday after the sermon that inspired you, the reality of your beliefs is put to the test.

Almost a thousand years after Nehemiah, men, women, children, and entire families in Ghana would be corralled like cattle, a thousand at a time. They were forced by merchants of greed to pass through a narrow doorway, never to return. Three million Africans were violently abducted—families experiencing each other’s love, working and developing their skills together, living their lives. And then the great holocaust of the 1600’s and 1700’s occurred and they were herded through a single doorway that now reads: “Door of No Return.” Not only in Ghana, but capturing countless souls from other abduction ports as well.

These profiteers sold human beings as machines. Human trafficking at its most elaborate and most organized. Opportunists from all corners of the globe cashed in on the financial gain. Many who called themselves “Christians.”

How could a Christian force 1000 Africans into a hull of a ship and sell or buy other humans without considering Paul’s words in a letter he wrote to the church in Philippi, “Do nothing out of selfish ambition or vain conceit, but in humility consider others better than yourselves. Each of you should look not only to your own interests, but also to the interests of others.”

Are Christians immune to sin? No, unfortunately. Perhaps the most popular, yet most socially acceptable, sin in most Christian circles is greed. Greed is not good, but it ain’t bad, so we harbor it in our hearts. This is what we have all heard: “We have to make a living.”

“I am not a greedy person; I just like nice things.”

“To be a Christ-kid I will name it and claim it and live with great abundance.”

However, since the beginning of recorded history, the desire for money has an hallucinogenic effect on us and, as a result, has turned countless humans from the faith and pierced them with many a grief.

May the atrocities of the past never be forgotten, and, more importantly, may they never be repeated. This can only take place by being true followers of Christ. Education about slavery will remind us of our heinous crimes against humanity, but will not prevent new generations from similar sins.

The only remedy is to truly follow Christ and His example. He showed us the most basic way to live when He said, “Greater love has no one than this, that he lay down his life for his friends. You are my friends if you do what I command.” There is a debt to pay to those who have been wronged—a debt that should never be paid off, and payments should be made daily. It is the debt to love one another more than ourselves. Let’s start paying this enormous and very delinquent debt.

Nehemiah’s people thought they were surviving. They did what they had to do in their own understanding of finance. This meant, “If I have something you need you can borrow it with interest. I need to survive too.” This practice takes time-tested business principles and merges them into everyday, family life. The problem is that it leaves no room for faith and a God that honors such faith.

Nehemiah’s people knew all too well about being treated as dollar-store items, and traded like baseball cards. Years earlier they were pardoned, bought back, and liberated from the tyranny of slavery.

But what happened next is a scheme only perfected by the evil one. Not one of Nehemiah’s people would have condoned slavery when they were oppressed, but when faced with the opportunity to lend to their own brothers, and perhaps to make a meager profit, they opened the door to great opportunity for a familiar pain. After a short while the have-nots were in debt to the haves, and falling deeper into bondage.

It is your turn. With eyes wide open to where you are or where you are going, it is time to stop the train that is on the wrong track or has already derailed, and do it God’s way financially. You do not have to be enslaved to the bondage of debt, greed, or any other lesser gods.

February 24, 2012

Here we go with the first round of Free Money Finance March Money Madness (to follow all the action click on my March Money Madness category link and scroll down to read all the posts involved in this subject.)

I've listed each "game" (one post versus another) in segments along with the wording provided by the author when the post was submitted. I've also listed a keyword after each post title to make it easy to vote (as a made-up example, you can just comment: Game 1: Saving; Game 2: Investing, etc.) Be sure to comment which one you like the best out of each set of two -- you will help determine the winner! Criteria for the best article is somewhat subjective, but you can use these factors as a guide: 1) practicality of the post 2) how interesting/provocative/unique it is, 3) the "personal-ness" of it and 4) its impact on net worth.

Here are today's games:

GAME 19

Violating a Personal Finance Rule: I Just Bought a NEW Car! (Car) - Normally, I'd buy a used car. However, I broke this "rule" of personal finance recently in order to get what I REALLY wanted. This post is about why sometimes it's better to weigh the options, and do what works for you -- instead of going by a rule of thumb.

VERSUS

What rate of return should you assume for your retirement plan? (Rate) - Projecting returns is something everyone needs to do but not everyone knows how. This post was really popular among readers and bloggers because I think it's a question people ask themselves all the time. The post shares great data and also good advice on using multiple returns to cover different possible outcomes. Using one rate of return is dangerous because it is guaranteed to be wrong.

GAME 20

Ways to Pay for and Afford College (Ways) - In this economic recession and with unemployment at unfortunate highs, students and adults looking for higher education are struggling with rising tuition rates. Exacerbating the situation is the fact that this sought-after education is essential to landing those elusive job opportunities. This article's key goal is to provide a comprehensive look at all of the options, many unique and thought-provoking, that people can utilize to reduce tuition rates and minimize their reliance on student loans.

VERSUS

8 Ways To Reduce Clutter (Clutter) - Clutter comes in many forms. Whether it be a messy desk, an overfilled garage, or too many bank and credit accounts, clutter is an obstacle to success, organization and efficiency. Use these tips to reduce clutter, than start applying it elsewhere...like to your finances, for guaranteed results!

6. We shop at Meijer more than any other store on this list. I love their stores. Plus their charges ring up as grocery purchases so I earn 6% cash back on purchases there using my Blue Cash Preferred card. I also get 6% back on all the gift cards I buy there (Panera, Chilis, gas at Meijer stations, etc.)

7. I hate Sears more than I hate Macy's. Way more. I do not know how they made it into the top 10.

8. I haven't been into a Sam's Club in years since I belong to Costco.

9. Kmart is in the same boat as Sears IMO (since they are co-owned.)

10. Personally, I like Walmart supercenters. The store by us is not a supercenter though and is a bit run down.

How about you? See any stores on this list you especially like or dislike?

A tax tsunami is coming at the end of this year. The higher your adjusted gross income (AGI), the closer you live to the coast where the tsunami will hit. This will be your last opportunity to safeguard your assets in a lifeboat and avoid getting swamped with taxes.

At the end of 2012, the Bush tax cuts will expire and tax rates will go up across the board. Even the 10% bracket will rise to 15%. There will once again be a marriage penalty on two-income families. A phaseout of itemized deductions and personal exemptions will return. The child tax credit will drop to half. The death tax will return at 55%. The capital gains tax will rise from 15% to 20%. Tax on dividends will increase from 15% to 39.6%.

And these are just the first wave of tax increases for 2013. Obamacare rolls out additional taxes through 2014. Taxes will be higher, but the country will still be in financial trouble. Like a merchant in danger of going bankrupt, the government is trying to raise prices to stay solvent. Cutting overhead, nearly always the solution, isn't even being considered.

It is time to take as much of your business elsewhere as you can before these rate hikes come into effect. Mercifully the government has provided a way for you to get a massive amount of your net worth out from under the growing tax burden. It is time to drive a Brink's truck through the legal loophole of Roth conversions this year. For those of you unwilling to take advantage of this opportunity, the road to serfdom is the default.

If you have an income over $100,000, this is the first year you can take money from your traditional IRA, pay tax as though that money is ordinary income and convert it to a Roth IRA. This procedure is called a "Roth conversion."

There are many reasons to do a Roth conversion this year. Each of them is a new tax burden being laid on the most productive members of society. Moving your money to a Roth IRA is putting your money in the only vehicle where it will never be taxed again.

Traditional IRAs get you a tax deduction now, and you can delay paying taxes until after your investment has grown. With a Roth IRA there is no tax deduction when you deposit the money. But the investments grow tax free rather than tax deferred. Qualified distributions from Roth IRAs are not subject to any income taxes. Roth IRA accounts are to your advantage if your tax rate will be higher when you withdraw the money than it was when you contributed.

In a Roth conversion you transfer your investment from your traditional IRA account into a Roth account. You pay tax on the value of what you transferred. The amount you can convert is unlimited. If you have traditional IRAs worth millions of dollars, you can increase your income this year by millions of dollars. If you are already in the top tax bracket, the conversion will not increase your marginal tax rate.

If you execute a Roth conversion now, you can change your mind later. If you decide the conversion wasn't worth it, you can move the money from the Roth account back to your traditional IRA account in a "Roth recharacterization."

Recharacterizing a Roth conversion can be done any time before you file your taxes, including the filing extension. So you can change your mind any time before October 15 of year 2. And you can decide to recharacterize part or all of what you converted.

If you convert this year, you can always recharacterize the conversion next year and undo it. But if you fail to convert this year, you miss forever being able to realize the income under the Bush tax cuts.

With a Roth IRA, you pay tax on the acorn. With a traditional IRA, you get a bigger acorn to start with, but you pay tax on the oak. Many families have actually lost money by investing in their traditional IRA when they were young and in a lower tax bracket, only to find themselves in a much higher bracket during their retirement. A year from now, we will all be in a higher tax bracket.

You are a good candidate for a Roth conversion in 2010 if you have the following characteristics. You have an AGI more than $100,000, so you are being targeted for future taxes. You have a large IRA that could be converted. You expect your tax bill to be higher in the future. You have sufficient taxable assets to pay the tax. You would like to reduce the value of your gross estate and leave a tax-free asset to your heirs. You are willing to pay estimated taxes and higher tax preparation fees.

Even thought this technique could boost your after-tax returns, be careful. Executing a Roth segregation account requires professional assistance. Such a technique should be just one small part of a larger comprehensive financial plan. And you should seek the guidance of a personal fee-only financial planner and certified public accountant (CPA) who have a legal obligation to act in your best interests. The laws are changing annually, and as a result so is the optimum path.

I published similar advice in 2010 when it looked like that would be the last year for conversions under the Bush tax cuts. Congress unexpectedly extended the lower rates for another two years. Those who have taken advantage of those two years have moved as much of their money as possible to Roth accounts and saved a tremendous burden of future tax hikes. Now that extension is expiring, and this time there probably won't be another extension.

I frequently get asked to name the best credit card promotions, offers, and deals available today. So instead of answering each person individually I thought I'd write a post I could point people to and then update it as offers change over time.

At the end of the post I'll give some thoughts on taking credit card promotions, offers, and deals, but some readers will simply want to get to the point and see the list, so I'll start with that.

Here's a list of what I consider to be the best credit card promotions, offers and deals. I'm not going to include fluff offers, just those I think are the best and are substantial. Each one below has a sign-up bonus of at least $250 in cash or value -- the minimum standard I have set to make it well worth the taking. The winners:

General Cards - Best cards for overall on-going use.

Moved

Airline Cards

Having a credit card for any airline carrier you use even a bit has some huge advantages. To start off, the cards come with sign-up bonuses as well as points (of course) when you use them. But the big money comes when you use then to save on baggage fees. For example, on my family's trip to the Caribbean we saved $150 on baggage fees alone (three bags, $25 each, round-trip) using the Delta card below. Then I've continued using it, racking $50 in savings ($25 for one bag round-trip) a few more times. Here are the cards and a quick summary of their offers:

From what I've seen, opening and closing credit card accounts have little to no impact on your credit score, an issue many people are concerned about.

Please be aware that bonus offers come in and out quickly. In addition, card terms can also change without notice. I'll try to keep them up-to-date, but they may change before I update the post, so read the details when you apply for any card (something you should be doing anyway).

Yes, there are fees with some of the cards above. Many are waived for the first year. Do the math and make sure they work for you.

If you are more interested in using a card on an on-going basis (rather than getting a big promotional offer), see my list of the best cash back credit cards.

Have I left any cards out that you think I should consider?

Disclaimer: This content is not provided or commissioned by American Express. Opinions expressed here are author's alone, not those of American Express, and have not been reviewed, approved or otherwise endorsed by American Express. This site may be compensated through American Express Affiliate Program.

Today we were up and had breakfast by 9 am, then hit an art seminar on the ship ("The Art of Collecting Art.") We had a quick snack in our room afterwards and got off the ship at 1:50 pm just after we docked at St. Kitts.

Our excursion today was called "Catamaran Sail and Snorkel" and that's what it was. We got on a catamaran, it hit the open water, we sailed to a supposedly nice place to snorkel, and we did some snorkeling. The snorkeling was "ok" at best, but the day was beautiful, so just being in and on the water on such a day was a treat. Plus it was our last day on an island, so we wanted to soak as much of the feel of being close to the water as possible.

After snorkeling, we sailed a bit and enjoyed drinks and conversation with other passengers and the crew. We were back at the ship by 6 pm, showered, and caught the last of the Patriots/Ravens AFC Championship game before heading to see Second City Comedy perform at the theater. They were GREAT!

We did a bit of shopping/walking after dinner, then went back to our room to watch the NFC Championship game where the Giants beat the 49ers. By that time we were exhausted and went to bed.

Monday, January 23

We were at sea today -- headed home for the next two days.

Life on the ship is not the greatest IMO. It's "ok", but there's really a limited set of things to do that we enjoy. Getting off the boat and seeing the islands was much better for us.

Today we ate breakfast then shopped the "discount sales" the ship had in the lobby. We then went to the basketball court where my son won the "horse" tournament, followed by an afternoon at the ship's pool (which wasn't really that big and was kind of crowded.)

We at dinner around 5:30 pm and then went to the "Bollywood" show, but left after about 15 minutes -- it just wasn't our cup of tea. An hour later we caught Second City performing again at another location and again, they were wonderful -- very funny (and they kept it clean).

We then went back to our room, watched a movie, and relaxed a bit on the balcony, sad that our vacation was coming to an end.

That's it for this post. Come back next time to hear about our last day on the ship and our trip home. For now, enjoy these pictures from St. Kitts: one from under our catamaran and another of a wrecked ship we wanted to snorkel around but the crew wouldn't let us. (click images to make bigger)

February 22, 2012

I hope to have $4 million saved by the time I retire in 30 years. That sounds like a lot of money, but how much would that be in today's dollars?

Their response talks about how the reader is right to ask this question because of the impact inflation has on purchasing power -- especially over a long period of time. Here's the heart of CNN's answer:

Even if inflation were a relatively modest 2% a year, $4 million in 30 years would have the purchasing power of about $2.2 million today. And if inflation heats up to a 4% annual pace, $4 million in 30 years would be the equivalent to about $1.2 million today. Hardly chicken feed, but a long way from $4 million.

They suggest that instead of looking at total dollars saved, potential retirees should instead look at the income generated by the savings -- since that's more meaningful. Their thoughts:

For example, using the 4% rule, a common metric for turning assets into income with a high probability of it lasting at least 30 years, a $4 million nest egg would generate about $160,000 in annual retirement income.

That's in 2042 dollars, however. In terms of purchasing power, $160,000 would be the equivalent of about $88,000 today, assuming 2% inflation over the next 30 years, or roughly $49,000, at 4% inflation. Still meaningful sums, but they don't conjure up that feeling of having hit the jackpot that $4 million does.

A few thoughts here:

1. It used to be that a million dollars was enough to retire. Now, if you're going to retire in 30 years, $4 million might not be enough. Man, I hate inflation! ;-)

3. I'll share my plans for dealing with inflation/retirement in more detail in a future post. But for now let me simply say that my plan is to save enough so I never have to withdrawal a penny of retirement savings principal -- that I can live off interest/earnings only. And if I can generate much more than I need in the early years, I can actually increase my savings -- which will offset inflation losses in future years.

Anyone out there dealing with the same issue (inflation) when you're working on planning your retirement savings?

Here we go with the first round of Free Money Finance March Money Madness (to follow all the action click on my March Money Madness category link and scroll down to read all the posts involved in this subject.)

I've listed each "game" (one post versus another) in segments along with the wording provided by the author when the post was submitted. I've also listed a keyword after each post title to make it easy to vote (as a made-up example, you can just comment: Game 1: Saving; Game 2: Investing, etc.) Be sure to comment which one you like the best out of each set of two -- you will help determine the winner! Criteria for the best article is somewhat subjective, but you can use these factors as a guide: 1) practicality of the post 2) how interesting/provocative/unique it is, 3) the "personal-ness" of it and 4) its impact on net worth.

Here are today's games:

GAME 17

5 Reasons You Should Never Buy a Video Game at Launch (Launch) - The video game market has gamers rejoicing as Triple A titles are released, and lamenting these reasons you should never buy a video game at launch. Rejoicing as fantastic video games are released, and lamenting because their wallets are empty.

VERSUS

The Dark Side of Being Self-Employed (Dark) - Being self-employed means you set your own hours and be your own boss. It can be refreshing to be responsible only to you. However, being self-employed isn’t always sunshine and rainbows.

GAME 18

Personal Finance Lessons From Harry Potter (Potter) - The end of popular series Harry Potter brings personal finance lessons from every book or movie. Here are 7 lessons I learned from the 7 installments of Harry Potter.

We were up early and it was a bit overcast and raining. But by the time we went to breakfast and came back, the sun was out!

We exited the ship in Antigua at 9:20 am and walked along the dock. We quickly came to our catamaran named "Excellence." And it truly was excellent.

Our excursion was called "Antigua by Sea" and the basic concept was that it gave you a tour of the whole island from the water. About 120 people or so were on our boat. We sat near the front which was a GREAT location (we could see clearly, feel the breeze, and got the full bounce -- which was fun -- from the Atlantic Ocean once we got out into it.) If you ever go to Antigua, I highly recommend the "Antigua by Sea" excursion on the Excellence.

We pulled out of the bay and into the Caribbean Sea. The guide pointed out various landmarks along the way as we cruised at a pretty good clip. The water, sky, land, and really everything was completely beautiful. Imagine the perfect tropical day in your mind -- that's what it was like!

We drove for an hour or so, then pulled up on a secluded beach (there was no one but our group there). From there we snorkeled for an hour or so and then had lunch -- chicken the crew had grilled on the back of the boat. We then spent a couple more hours swimming, eating, drinking, visiting, and just enjoying the tropical location. After that, we hit the water for more sight-seeing for an hour or so, returning to our ship around 3:45 pm. It was a wonderful day -- as I said, the best of the whole cruise and absolutely picture perfect.

We showered when we got back on the boat and then went to dinner. There was a different procedure for dinner this evening. Instead of us serving ourselves, now the crew members were serving us. The reason: some virus had broken out on the ship and they were trying to control its spread. We never saw anyone sick and were not sick ourselves, but we heard of groups where 10 of 40 people were confined to their rooms (because of sickness) and the like. Yikes! (In case you're interested, here's a piece on a cruise outbreak that occurred after we were home as well as a listing of outbreaks over the past few years).

That night's entertainment was a Las Vegas-style singer/impersonator (he did songs and sounded like Johnny Cash, Elvis, etc.) It was a decent show.

Afterwards, we went back to our room and had a massive Uno tournament. I'd tell you who won, but modesty forbids me to. ;-)

We were up at 8 am, had breakfast, and were off the ship at 11 am. In Barbados, the ships dock a bit away from the main terminal, so we took a bus to the terminal, then got on another bus to take us on our excursion.

We got into a "speed boat" with 40 other people or so and drove to an area where endangered tortoises were known to swim. We all jumped off the boat (in snorkel gear) and the guide started putting small bits of fish into the water. Almost immediately, two turtles and a ton of fish were swimming amongst us. We were not allowed to touch the turtle (doing so would supposedly spook them), but they swam freely around us. It was very cool.

We then hopped back into the boat and drove a bit to a nearby location. We jumped back off and swam over to a shipwreck that was 20 feet or so below the surface (but still very visible -- the water was so clear). We snorkeled there for an hour or so before getting into the boat and heading for a nearby beach. We spent about an hour swimming and enjoying the warm and crystal-clear water before heading back to the boat's home and then the terminal. We did a bit of shopping there, then took a bus back to the ship.

We spent a couple hours at the ship's pool and hot tub and then had dinner brought to our cabin. Later that evening we went to the "Chocoholic Buffet" -- the regular buffet replaced with all sorts of chocolate desserts. It was GREAT! Afterwards we shopped a bit, walked around the boat, then headed back to the room and enjoyed sitting and talking on the balcony. Overall, another great day!

That's it for this post. Come back next time to hear about our final island stop and our last days on the ship. For now, enjoy these pictures -- 1) the Excellence, 2) one of the turtles we swam with, and 3) the table leading to the Chocoholic Buffet. (click images to make bigger)

February 21, 2012

If you don’t change the way you think about money, there is no way you will change the things you do with your money. To achieve your financial goals, or in fact any goal, you need to start out with a strong foundation. Without a strong foundation, you will fall back into the same routine you have been in for years. In order for you to start thinking differently, you will need to change the three Ps: your principles, priorities, and plans. When you change all three, you will establish the foundations for how you will make decisions about your finances. You will finally be able to reach your personal money goals.

Let’s begin with principles.

Principles

A principle is a basic truth that serves as the foundation for how you live your life. It is a core belief. In chapter 1, we talked about a number of principles that people hold about money. One person might believe that only people who are born wealthy or win the lottery will ever have money and that it doesn’t matter what ordinary people do, they will never have money. Another might believe that if people spend less than they earn, always put a little away in savings, and make financial decisions with their heads rather than their hearts, they will grow their wealth. Naturally, these different principles will lead these two people to do very different things with their money.

Priorities

Every day we set ourselves priorities, basing them on what we think it is most important or urgent for us to do, or what our main concern is. But when we’re busy, we can get so caught up responding to what needs to be done right now that we lose focus on the big picture. Here is a simple question to ask yourself: What am I spending my time on, and what am I spending my money on? If you give yourself a moment to think about this, you might be surprised to find that what you are actually prioritizing might not be what you should be prioritizing.

Most people do not make their finances a priority. That is a big mistake. Think of a time when you had to reset your priorities at work or at home because something urgent came up. As soon as you changed your priorities, you started thinking differently and doing different things. For this reason, in this book we are going to take a close look at your money priorities.

No one else is going to start managing your money better for you. You need to reset your own priorities, then things will start changing for you. The fact that you have purchased this book shows that you already have some of your priorities in order. You have spent money on something that is important. You have acknowledged to yourself that you want your finances to be different, and you put your money where your mouth is.

Plans

I have heard over and over again that people do not plan to fail. I don’t believe that. Most people fail because they don’t have a plan, so the real truth is that they are planning to fail, they just haven’t written it down yet! Because you do not want to be like most people, you are going to change that, starting today.

Most people have good intentions and know it would be a smart idea if they wrote down a plan for their money. So why don’t they? They equate planning with changing, and you know as well as I do that most people do not like change. The tragedy here is that by avoiding the short-term pain of adapting to change, these people are missing out on long-term positive change in their finances. Most of these people in fact are at risk of a retirement in which they may not be able to pay their heat bill or buy groceries. To build wealth, you need to change your attitude and actions with money, and that means acknowledging to yourself that you need to plan.

Planning involves long-term thinking, and if you want more money, you have to start thinking longer term. In the chapters that follow, we will go step-by-step through setting up plans for your spending, debt repayment, and saving and investing. In each instance, you will assess where you are now, then you’ll develop the right plan for you, and finally you’ll put it into practice. From time to time, you will review and adjust the plan so that it’s still leading you toward your ultimate goal.

A final word on plans: They need to be written down. If you write a plan down, you have a much higher probability of following it.

How the Three Ps Work Together

The person who believes that it is only those who are born wealthy or win the lottery who will ever have money probably follows few or no rules about how to spend money, doesn’t give money a high priority, and does little or no planning. On the other hand, the person who believes people can change their financial destiny probably follows a number of money rules, gives money a high priority, and has a long-term financial plan. (I think you know by now which of these people ends up with the most money.) It is important to remember that while changing your principles is the crucial first step, you will then need to follow it through by actually doing something different with your money. Your priorities and plans will be the new framework for what you do with your money.

As an example, let’s consider this principle: “If you identify and reduce your wasteful spending, you will have more money.” The first stage is to embrace this principle and admit that you are wasting money. Then you will need to set new priorities; your first will be to spend on what you need rather than what you want. Finally, you will make a new spending plan to ensure that you cut your wasteful spending by 15 percent. If you believe that you are wasting money, you will reduce the amount you are spending. If you then follow the plan of cutting your wasteful spending by 15 percent, you will have more money.

What I have just shared with you isn’t anything miraculous, but the truth is that most people say they want to be better with their money, but they don’t do anything differently. It’s important to balance thinking and doing, so in the following chapters, we are going to look in turn at the principles, priorities, and plans you need to follow in order to become a wealth builder.

Your First Principle

People who write down their goals have a higher probability of reaching them.

In fact, a prominent psychologist has stated that it is possible that people are 11 times more likely to reach a goal when they write it down, as opposed to simply thinking about the goal.

I believe that the physical act of writing transforms a thought into an action. Keep this in mind: Most people do not write down their goals. Most people fail to reach their goals. You do not want to be like most people, so from now on, write your financial goals down.

Throughout this program, you will be setting goals and using worksheets to assess and plan your spending and saving, so now is the time to set up a system for keeping all of that material on record. Some people like to buy a blank journal to write in; others like to file their money goals and plans in a folder. The key is to find a system that suits you and enables you to keep everything in one place, where you can easily access it.

Your First Priority

Make finances a top priority.

Did you know that most people watch an average of 35 hours of television a week? I want you to spend at least one hour of your time each week on your money. Choose the same day and time each week, block out that hour in your diary or on your calendar, and then show up like you would for any appointment. Your money has to be one of your top priorities, so don’t allow anything else to take your attention at that time.

Your First Plan

Read this book right through to the end.

The sad truth is that most people read only the first few pages of a nonfiction book. Dollars and Uncommon Sense is basic training for your finances, and it is designed as a program to be followed from beginning to end. Only by approaching it that way will you be able to completely transform the way you think about money. That’s why I’ve kept it short, clear, and easy to follow: I want you to read it from cover to cover in one sitting, so that you get the big picture. The book is designed to be read in just a few hours.

If you have the time right now to keep on reading, that’s great. Otherwise, pick a good time—one night during the week or one weekend—when you can make it a priority to read and absorb this book. Write that day down in your diary or calendar as you would any appointment, and show up on time. This is about your financial future, so treat it as though it’s a doctor’s appointment that you have been trying to schedule for the past six months and you know there won’t be any other openings anytime soon.

Because Dollars and Uncommon Sense is all about retraining the way you think about and act with money, the changes I’m recommending won’t happen overnight. This is a step-by-step process that will change the way you spend, pay off debt, save, and invest. When you complete one step, you will need to open the book again and take a look at the next step, so that you remember what you need to do. This is the kind of book that I hope you will use your highlighter pen on, so that later on you can find key ideas again when you need to refresh your memory or renew your commitment to the principles.

As in basic training in the military, repetitiveness is a key to building competence and confidence. When you read things over and over again, they start to become second nature and you are able to start thinking differently without any effort. Once you start thinking differently, goals you thought you could never reach start seeming reachable, because you have the tools and competence you need to succeed. And as each of your goals are met, you build more confidence.

Congratulations, you have just completed your initial orientation! In the next chapter, you will learn how to start taking charge of your money. You will start telling it where to go, instead of having no idea where it went.

The Take Home

To start thinking differently, you will need to change the three Ps: your principles, priorities, and plans.

Principles are core beliefs that influence what you do with your money.

Priorities are what you spend your time and money on. As soon as you change your priorities, you start thinking differently and doing different things with your money.

Write down your long-term financial plans and goals, and review and adjust them regularly.

Spend at least one hour of your time each week on your money.

Set aside a time to read this book through, then review it again each time you complete one of the steps.

The following is the latest post in my "Reader Profiles" series. Each post in this series details the financial situation and challenges of an FMF reader. The purpose of this series is to help us all identify with people like us (in similar situations -- not all will be, of course, but eventually I'm sure you will find someone like you here), get to know the frequent commenters on the site, and hear some financial wisdom/challenges from people other than me.

If you're interested in contributing to this series, then drop me an email. The series seems to be very popular with readers and I need a steady stream of new ones to keep it going.

Next in the series is FMF reader DM. She answered my questions (in red below) as follows (plus has some questions to be answered at the end):

Please tell us a bit about yourself.

Hello FMF readers!! I'm 30, my husband is 34. We have been married for almost a year and a half and live in an expensive northeast city. We're expecting our first child in a few months. We are similar in our financial goals, but very different in our financial situations and approach to money/saving etc. I grew up being a saver, but not a budgeter, and he grew up with poor financial role models and a spendthrift attitude toward money.

Describe your financial situation (who works in your family, how your income is (general), how your expenses are, etc.).

At the end of 2009 I became unemployed and my savings dwindled from 20k down to about 5k until I found my current position 6 months ago. During that time I was using my savings to pay bills and pay off old school debt. I'm currently debt free! (hallelujah!) Hubby has $4k in debt that he refuses to allow me to just pay off in one lump sum for him using my savings.

I work full time and am attempting to start a side business writing, and I attend grad school part time which I'm paying for out of pocket to avoid more debt.

My salary is decent for our area (70s) and my company gives a full $17k match on the 401k so now that I'm eligible I will be contributing the max to that which drops my take home pay significantly. (24%)

My husband is in school full time (paying out of pocket and on his cards) and works part time earning approximately 20k. He has no savings.

I use a loose budget that I generally stick to and am able to save a fair amount each month $1000-1800 depending on what's going on during the month gift-wise. (Though most of that ends up going straight to tuition 3 times a year)

What are the current financial issues you're facing (saving, paying off debt, etc.)?

Most pressing financially is the baby. That will bring a babysitting bill into the picture which will not allow us to save as much. We are considering having my husband stay home part time with the baby to lower this expense. Also I'd like to start a 529 and make whatever contribution I can each paycheck to it, but not sure where to start with that.

My problem in the past has been travel. We vowed to do no traveling for the next two years so we can build our savings up - currently we only have $8,600K in savings and $2000 in the baby's account. We're hoping to get the savings up to 10k and leave that as our emergency fund and then start a down payment savings fund. I have about 20K in my retirement account, but that will get beefed up this year thanks to the max and the match.

We intend on moving in about 1.5 years and want to purchase a home at that time with a decent down payment. I will be through paying for school by november so the money currently going to tuition will be able to go to down payment savings after that.

My financial issues are saving and investing. I don't know where to begin w/ investing.

Also working with my husband to start saving, paying his debt off and thinking ahead financially is a major issue for me. He's very closed off about the subject of money, didn't have great financial role models growing up and is uncomfortable with the subject.

Another big financial issue is next year, going down to one income for 4 years when my husband moves to the next level of his schooling. At that point we will have moved to our new (less expensive) location, new home, and I'll be making significantly less money, though our child care will be free thanks to family in the area.

What are your plans for the future. (retire early, build your career, etc.)?

Starting our family, building our careers, becoming homeowners, me building a business that I can do from home, and creating a flexible lifestyle that allows for travel are our plans for the future.

My husband's career path is a long one but after his schooling he will be making an excellent salary. It is our plan to live on his salary at that point so I will be able to stay home with the children and work part time from home.

We have no plans on retiring early since we're both working on building our dream careers.

A big part of our plans is traveling frequently with the children. A large financial consideration though this is put off until my husband's career is well on track and his student loans are being hacked away at.

The weather was still "ok" today -- "ok" being defined as 70-75 degrees, a bit windy, and overcast. Better than Michigan, but not the tropical feel we wanted. In addition, the waves were high, so our excursion today (we pulled in to Tortola, British Virgin Islands this morning) was cancelled. We were supposed to go to the Virgin Gorda Baths and do snorkeling, but the waves were too high and the trip was cancelled. Because we had booked our excursions through the ship, we received notice of this early in the morning with a note left on our door (and our account was credited with a refund.)

Later in the day we talked to another couple we had befriended and their experience illustrated another advantage of booking an excursion through the ship (or at least on your own with a reputable company.) They had cruised several times and headed out to the baths on their own. They took a series of transports to get there. I can't remember them all but it was something like a boat, then a bus, then a cab -- each costing them something along the way (plus costs on the way back). Then they even paid to get into the park where the baths were only to find out that they were inaccessible that day due to waves. They had no way of finding this information out ahead of time (or at least didn't think of it.) So what seemed to be a "cheap" way to see the baths ended up costing them more than what those of us who went the "expensive" way paid.

With our plans cancelled, we hopped off the ship and decided to wing it. There was nothing really close to the ship to do, so we walked a bit and ran into several 20-person (or so) open-air busses. These were private companies offering various tours to the cruisers. We selected one and ended up getting a 2 1/2 hour tour of the island (with stops at a rum maker and the beach) for $15 per person. You can't get a sneeze from the ship for $15 per person (all excursions cost in the $60 to $100 range per person). So we snapped it up and had a GREAT day touring the island. While the temperature was cool for water activities, it was fine for seeing the sights -- shopping areas, villages, the coast, etc. I've included a couple pictures of their beaches at the end of this post so you can see how beautiful it was.

We were back at the ship by 1 pm or so, cleaned up, ate, then spent the afternoon in the hot tub and the ship's pool (the weather had started to turn warmer by the time we got back). That evening we went to the ship's magic show. I can't remember who the magician was, but he was VERY good.

Thursday, January 19

This was our second-best day of the whole trip (hint: the best day is tomorrow).

We pulled into St. Maarten, the Dutch side of the dual-country island (the other portion is St. Martin, governed by France.) It was a warm, sunny day, the type of day you hope for/imagine when you go on a tropical vacation.

We hadn't purchased an excursion for St. Maarten because we couldn't find one we liked. We heard that there was nice shopping near the dock, so we go off and started walking.

About a mile or so later (I could be off -- I'm terrible with distances -- but it did take us 10-15 minutes to walk it), we hit the gold mine -- both a nice shopping area and a beautiful beach. At one of the stores my son and I got soccer jerseys from teams we like. We paid $30 each for what would have cost $50 to $75 for a "great" deal online, so we were happy. We spent a couple hours shopping and walking the city and after that we were HOT. We decided to walk back to the ship, change into our swim gear (we didn't know a beach was close so we had worn shorts and t-shirts), then walk back to the beach. Which is what we did.

We spent a couple of beautiful hours on a gorgeous beach (see below for a picture of it). The water was warm and clear and the sun was shining. Afterwards, we went and picked up a t-shirt for my daughter and headed back to the ship -- exhausted from all the walking, swimming, and sun.

After a late lunch/early dinner, we relaxed a bit on our balcony (watching a Royal Caribbean ship docked close to us and then enjoying the water/scenery as we pulled out), showered, then went to see comedian Dave Heenan. He was funny, but a bit raunchy for the kids (and we went to the early show where that is supposed to be a non-issue.) Afterwards we topped off with a late dinner (yes, you can eat as much as you like on a cruise, and we did), took showers, and got ready for the next day.

St. Maarten was one of our favorite places and I can see us going back there someday.

That's it for this post. Come back next time to see how our visits to Antigua and Barbados went. For now, enjoy these pictures -- two high up shots of Tortola beaches and one (closer view) of our beach in St. Maarten. (click images to make bigger)

February 20, 2012

Most people scratch their heads and wonder why they are in the same financial predicament as everybody else. Assess the situation around you. Look at your friends, family, and neighbors. How many people do you know who live paycheck to paycheck? Do you know anyone who is worried about how they’re going to pay their rent or mortgage, or what they’re going to do about grocery money? Do you know someone whose utilities are on the verge of being cut off? Can you think of anyone you know who is worrying about how they’ll get by if they lose their job? Are you one of them?

Perhaps, like most people, you are stressing over how much debt you have and are just making minimum payments on all of your credit cards. Are you looking for a way out? Or are you coping with the problem by telling yourself that everybody you know is in debt, so it must be okay that you are, too?

Retirement? What’s that? Are you thinking you will be dead by then, so you don’t have to worry about that now?

I could go on forever and ever. The truth is that most people are living paycheck to paycheck. Most people have some sort of debt they are worried about. Most people worry about losing their job and wonder how they will pay their bills if that happens. Most people wait until they are 55 to even start thinking about retirement. Most people worry about their money.

So why in the heck would you want to be like most people?

These days I am happy to say that I am not like most people. But to tell you the truth, I used to be.

When I was growing up, my family had little or no money. I lived in a trailer park. Both of my parents worked hard, and I never went hungry and always had a shelter over my head. I had clothes to wear, but at times, kids made fun of what I was wearing. Neither of my parents went to college, so education wasn’t stressed that much. As long as I had passing grades, they were happy. As I got older, I took part-time jobs after school for extra money. After graduating high school, I enlisted in the Army.

I was just like everybody else with my money. I spent everything I made, lived paycheck to paycheck, and had no savings to speak of. I really didn’t understand why I needed savings. I only had a little debt, I thought. But the truth was that I racked up more than $32,000 in credit card debt. I thought that was okay. I told myself that everybody has credit card debt and that it couldn’t be a problem, because I was able to make the minimum payments each month. As for retirement, I was young and thought to myself that I would worry about that later.

I worked my way up the ranks, and after 12 years of service I decided to move on. From the contacts I made in the military, I was offered a job in finance. I hadn’t set out to make a career in finance, but someone saw a talent in me that I hadn’t recognized yet myself. And it was the best thing that could have ever happened to me. What I am going to tell you next is what started me on the path to changing the way I think about money.

It was the first time I saw real money. I was an investment representative for a national broker-dealer in El Paso, Texas, and I had been in the business for only a few weeks. A couple in their 40s came into my office and told my receptionist that they needed help investing some of their savings. She showed them into my office, they sat down, and I started gathering information from them. They were just normal-looking people. They didn’t look or act rich, I thought to myself. I told them that before I could open an account, I had to find out where the money was coming from—for example, insurance proceeds, the selling of a business, or an inheritance. The couple told me the money was part of what they had in their savings. After I completed the paperwork, they wrote a personal check for $25,000 to be deposited in their account. I still remember to this day how my hands were shaking when they placed that check into them. I never knew that normal people could have that kind of money. I didn’t know that ordinary people could write a personal check for that much! I thought only people with rich parents or an inheritance had money and that the only way regular people could ever have money like that was if they won the lottery or something.

I wasn’t totally convinced yet that regular people could have money in their savings accounts without luck, but this was the day my mind-set started to shift.

I want to share another story with you that also happened very early in my career and confirmed that I really did need to start thinking differently about money. On this day, I had two appointments scheduled, one in the morning and the other in the afternoon. Looking out the window, I saw my first client, a lady in her early 50s, drive up in a nice European sports car. As my receptionist escorted her into my office, I thought to myself that she was wearing a pretty expensive-looking wardrobe.

The first thing she told me was that she was an executive who worked for a software company. She went on to tell me that her salary was close to $300,000 a year. In the back of my head, the wheels were turning. I was thinking, “She must have a ton of money she wants invested.” Then she told me that she had to exercise some of her company stock options because she was about $50,000 in debt with her credit cards and could no longer make the minimum payments.

I wondered to myself how anyone who made that much money could have problems making the minimum payments on her credit cards. I know the answer now, but at that time, I was still thinking like most people.

That afternoon, my second appointment arrived. I saw her drive up in her late-model sedan. She was nicely dressed but wearing nothing as fancy as my first appointment had worn. I asked her to tell me a little bit about herself. She told me she was a schoolteacher, her salary was about $30,000 a year, and she was about to retire.

I am embarrassed to say that I remember thinking to myself that she probably didn’t have a lot of money to invest. When I asked her how much she wanted me to manage, I almost fell out of my chair: She had close to $400,000 in her retirement account.

I thought to myself, “How in the heck could a schoolteacher who doesn’t earn much accumulate so much wealth?”

Scenarios like this have played out time and again in my office over the years. The most important fact I have learned from this is: It doesn’t matter how much education you have or how much money you make, it’s the way you think about money that determines how much money you have. The reason most people are bad with money is that they believe they are bad with it. They believe they can’t do anything about it. They believe they will never have more of it. Your first step is to quit thinking like that.

Most of my clients are 55 or older. On average, they have between $500,000 and $1 million of investable assets. (I usually don’t like working with people with more than a million, because they think they are smarter than me . . . which may be true!) What I want you to take away is not how much money my clients have, but how they got their money. Most of my clients are just average people. Most of them were not corporate executives, doctors, or lawyers. Over the years of managing my clients’ wealth, I have found that they share common traits in how they think about money and, as a consequence, what they do with it. I call these the 6 Key Traits of Wealth Builders:

1. They spend less money than they make.2. They have little or no debt.3. They save.4. They have long-term plans for their money. 5. They do not let emotions cloud their judgment when they make financial decisions. 6. They start saving early in their careers.

You might not have any control over that last one if you’ve already been in the workforce for a while and are only now getting serious about your money. That’s okay, because if you take a look at the other five key traits, you do have control over those.

This works for everyone, not just clients of financial planners. I know this because a few years ago, in addition to managing people’s wealth, I started doing consulting work as a contractor for the Department of Defense. On the weekends, I would speak to service members and their families and provide them with free financial education and counseling. I really love doing that, because I know that if someone had taught me to think differently about money back when I was in the Army, I would have been so much better off.

Well, over the past few years I’ve discovered that the 6 Key Traits of Wealth Builders apply to people in the service, too. Since I have been in the military, I know that you really don’t make that much money. Yet when I met with these people, I learned that some of them had been able to accumulate a good sum of money. I asked them about their backgrounds, and it turned out their wealth had nothing to do with their rank or education level. The servicemen and women with money were those who spent less than they made, took on little or no debt, saved, planned for the long term, kept emotions out of their financial decisions, and started early.

The bottom line is that you don’t have to make a lot of money to have a lot of money. If you learn to spend less, you will have more. It sounds so easy, and it is something you probably already know. The difference is that in the following chapters we are now going to do something about it, by changing the way you think about money—and then you will begin to change what you do with your money.

The Take Home

Most people worry about their money. You don’t want to be like most people.

It doesn’t matter how much education you have or how much money you make, it’s the way you think about money that determines how much money you have.

There are 6 Key Traits of Wealth Builders:

1. They spend less money than they make.2. They have little or no debt.3. They save.4. They have long-term plans for their money. 5. They do not let emotions cloud their judgment when they make financial decisions. 6. They start saving early in their careers.

You don’t have to make a lot of money to have a lot of money. If you learn to spend less, you will have more.

Here we go with the first round of Free Money Finance March Money Madness (to follow all the action click on my March Money Madness category link http://www.freemoneyfinance.com/march_madness/index.html and scroll down to read all the posts involved in this subject.)

I've listed each "game" (one post versus another) in segments along with the wording provided by the author when the post was submitted. I've also listed a keyword after each post title to make it easy to vote (as a made-up example, you can just comment: Game 1: Saving; Game 2: Investing, etc.) Be sure to comment which one you like the best out of each set of two -- you will help determine the winner! Criteria for the best article is somewhat subjective, but you can use these factors as a guide: 1) practicality of the post 2) how interesting/provocative/unique it is, 3) the "personal-ness" of it and 4) its impact on net worth.

Here are today's games:

GAME 15

Creative ways to help a charity without spending any money (Creative) - "I can't afford to give to charity". How many of us have used this statement? I am willing to bet quite a few of us. But we don't need money to help, and I am not talking about the usual ways to give - volunteering, giving blood, donating used goods. We can do better than that. This post talks about 16 creative ways to help a charity without spending money, with minimal effort and absolutely no changes to your current lifestyle.

VERSUS

Is a House Cleaning Service Worth It? (Cleaning) - Is hiring a house cleaning service worth the cost? Some would say it's an extravagant expense. But in some ways, it could help you make money. See our experience in hiring a cleaning service and whether it's a service for you.

Are Safe Withdrawal Rates Really Safe? (Safe) - An epic 8000 word expose that puts the multi-year controversy behind safe withdrawal rates to rest once and for all. This subject is arguably the most important topic in retirement planning, and the analysis in this post earned top rankings in Google and praise from pension managers and top researchers alike (see comments!). Discover what ugly truths lurk behind the infamous “4% Rule” and how it might effect your financial security...

The following is the latest post in my "Reader Profiles" series. Each post in this series details the financial situation and challenges of an FMF reader. The purpose of this series is to help us all identify with people like us (in similar situations -- not all will be, of course, but eventually I'm sure you will find someone like you here), get to know the frequent commenters on the site, and hear some financial wisdom/challenges from people other than me.

If you're interested in contributing to this series, then drop me an email. The series seems to be very popular with readers and I need a steady stream of new ones to keep it going.

Next in the series is FMF reader CR. He answered my questions (in red below) as follows:

Please tell us a bit about yourself.

I am a 22 year old male working in a major city on the east coast. I graduated from college in May of 2011. I have a B.S. in Finance and started working in August of 2011.

Describe your financial situation (who works in your family, how your income is (general), how your expenses are, etc.).

I am lucky enough to be living at home so I do not have a rent expense. Most of my money goes toward building my savings as well as paying off my student debt which stands at about $55k. This has been a struggle to cope with. It’s frustrating knowing that amount of debt hangs over you. It makes you feel as if you cannot move forward in life with some of the things you’d like to have happen but I continue to make the most of my situation because I realize others have it worse. I am grateful for having a job and having the chance to get a college degree – albeit at a high price.

Here is a snapshot of my monthly financial situation. I take home roughly $2,900 a month. I direct deposit $1100 of that each month into a savings account. My savings account is at about $5500 at the moment. I have about $2k in my ‘general’ checking account and about $600 in my ‘bills’ checking account. I direct deposit enough to cover my monthly bills into my ‘bills’ checking account and the remainder (after savings account deposit) into my ‘general’ account.

I pay off $750 in student debt each month. I plan to move into my own place towards the end of 2012. With this in mind, I will be trying to pump as much money into my student debt before that happens – living near a major city is pricey and I’m preparing as if I won’t have much to save. My plan is to build my savings up to about 11k which should happen around June. At that time I will begin to direct deposit less money into my savings, about $550, and begin to put about $1300 towards my student debt per month. I’m hoping that my savings will reach about $14k at the time of moving out. With respect to my company’s 401k, I plan to begin to contribute once the match kicks in (after a certain time of employment). I realize it is very important to start pumping money into a 401k early – time is the critical factor IMO.

Other expenses are as follows:

Car/Insurance/Gas: $550

Cell Phone: $60

Gym: $20

Cable/Internet (live at home but I chip in): $85

Food: $50 (as I said I live at home but set aside a little money for lunch out a few times a month)

This leaves me with about $375 a month for spending freely. I usually don’t spend that much and I think that’s why my ‘general’ checking account has reached $2k.

What are the current financial issues you're facing (saving, paying off debt, etc.)?

Paying off my student debt. It’s been looming ever since I was approaching my graduation date. I constantly thought about it but I’ve recently been able to cope with it much better. Direct deposit is great because it allows me to stay disciplined in both savings and paying off the debt. I’m not sure if my current approach is the best one. I wanted to build up a big enough savings while taking into account my expected move out date and subsequent rent expense. I’m not sure if I should be focusing more on student debt NOW rather than in 6 months.

What are your plans for the future (retire early, build your career, etc.)?

In reading FMF, I’ve had the pleasure to pick up useful tips and words of encouragement. One thing that I am and will always do is further build my career. It’s my biggest asset and will have the most effect on my financial situation moving forward. At this point it’s really my only plan for the future.

A lot of it comes down to just utilizing a variety of tools that keep you disciplined. As I mentioned, direct depositing my paycheck into certain accounts helps me a lot. It keeps me organized and sets me on the path that I’ve chosen (although I’m not sure if my approach is the right one at the moment, it keeps me on it each month – that’s why I’m writing to FMF). I think starting early is very important too. Getting a hold of my budget at an early age really prepares me for all the curve balls that I’m sure will come my way as I grow older and gain more responsibilities (wife, family, career).

The moderate (4-7 foot) waves continued throughout the night last night, causing a rocking motion as well as a creaking in our room. The motion didn't bother me, but the creaking did. From this night forward, I slept with ear plugs in and was totally fine.

We had room-service breakfast, then ventured out for various activities on the ship (today was a day at sea). We watched part of the excursion presentation in the theater to both find more out about the excursions we'd selected as well as hear about others. We then attended a Cruise Critic (FYI, an absolute MUST visit if you're thinking about or are taking a cruise -- more on this site in a later post) meet and greet. Finally, we hit an art seminar, "30,000 Years of Art in 30 Minutes", before we headed off to lunch.

It was "cold" (70 to 75 degrees or so) and windy, so after lunch we sat in one of the outdoor whirlpools (NO ONE was in the main pool -- too cold) and talked with people from Germany to New Jersey.

Back in the room we caught a movie before dinner, then I hit the Internet Cafe to check on FMF and my email. The connection was VERY SLOW. It wasn't as bad as dial-up, but the satellite connection the ship had was much slower than the connections most of us now take for granted. It took me 30 minutes to do some tasks that should have taken 10. Oh, and it cost me $100 for 250 minutes of time (which I did not use all of during the cruise, but used enough that it was the best cost per minute package to buy.)

The rest of the evening was spent back in our room, sitting on the balcony and talking, as well as preparing for the next day in port.

Tuesday, January 17

We were up at 8 am and saw land! Our ship was anchored off the coast of Samana, Dominican Republic. We had breakfast at Cagney's, the steakhouse we had free access to because of our accommodations. By 10:30 am we were at the theater where the various excursions gathered and were dismissed in groups.

This was the only tendered stop on our trip. What this means is that instead of pulling into a port and letting us walk off, our ship put down anchor off the shore of the island, and we all had to get into tender boats to "drive" us to our excursions. Hence the reason we were dismissed in groups.

We got our call at 10:45 am or so and worked our way down to the side of our ship. We boarded our small ship rocked (the water was still kind of choppy, though it had died down) our way to Cayo Levantado, an island off the coast of the Dominican Republic.

The beach was beautiful as you'll see in the pictures below. The weather was "ok". It was 70-75 degrees and went between rain and sun. But compared to Michigan, it was paradise! We snorkeled, swam, kayaked, and rested. It was a nice day.

We got back on a tender boat at 2 pm or so and worked our way back to our ship/room, showered, then ate dinner. We went to the show that night at 7 pm. It was Radim Zenkl, the U.S. mandolin champion. The kid's hated it (the mandolin is not exactly their instrument of choice) but my wife and I thought it was "ok."

We made it back to the room and sat on the balcony some more, wondering if the rest of our cruise was going to be cold (relatively) and rainy. Thankfully, the weather was only going to improve over the next few days.

That's it for this post. Come back next time to see how our visits to Tortola and St. Maarten went. For now, enjoy these pictures from our day on Cayo Levantado. (click images to make bigger)

Financially, you are motivated to get going, to jump into the how-to’s, the nuts and bolts, and see the progress. But before that we have to unpack the financial stuff that will delay our progress and pack up the tools that will get us closer to the goal of building our financial fortress.

Nehemiah made two strategic requests of the king. He knew he not only needed the king’s blessing, but also his assistance in this tremendous undertaking. He asked the king for a letter to the governors of the surrounding cities so he would be safe in traveling to Jerusalem and to put the other governors on notice that he had their boss’s approval for such an undertaking.

As a result, this letter would also appoint Nehemiah governor of this broken-down city in Judah. His second request was a letter to the keeper of the king’s forest to give wood to repair the city and to make a home that he would occupy. The king did all that, plus he sent out the cavalry to protect Nehemiah.

Our tools for the mission after surrendering our financial lives to the Creator is knowing that the life of obedience is not a life of taking away our freedom, but one of unequalled and unparalleled freedom. It is freedom from the pain of financially poor decisions, the freedom of now having margin in your finances.

You will have the freedom from the consuming power of money, and you will also have the freedom from debt. The Word of God describes debt as bondage or of being a slave to the lender.

Thousands of people I have counseled, coached, emailed, or spoken to in groups have expressed the truth of this Scripture.

The way we accomplish this is to know exactly where the money is going and how much is coming in. Take a pad of paper, or download a free thirty-day diary from our website and start recording every cent that comes in and goes out.

This exercise may cure some right off the bat. There are many who would rather not spend than have to write down every cent spent. If that is you, you may have already won, as Publisher’s Clearinghouse would say.

To reach your goals you have got to know what your goals are and then start a spending plan. We will not use the term budget, because nobody likes it.

This will allow you to better utilize other tools to show you in which areas you need to reduce spending and increase income for a season. As my good friend and fellow financial counselor Stuart Easterly says, “This is the season of sacrifice.”

Understand that this will not be forever; this is only boot camp. You will be able to tell yourself, “I, with God’s help, can make it during this time of sacrifice.” After the season is over and you look back at the time it took to achieve your goals, you will see God’s hand as He carried you through many tough times.

Remember, you are obeying God by changing your lifestyle, getting out of debt, and increasing margin in your life.

Once you have a spending plan, you need to place restrictions on yourself. Maybe you have to put yourself on a cash-only system or avoid the places where you are tempted. In order for the spending plan to work, you must adhere to it 100 percent, with no exceptions.

February 18, 2012

Here we go with the first round of Free Money Finance March Money Madness (to follow all the action click on my March Money Madness category link and scroll down to read all the posts involved in this subject.)

I've listed each "game" (one post versus another) in segments along with the wording provided by the author when the post was submitted. I've also listed a keyword after each post title to make it easy to vote (as a made-up example, you can just comment: Game 1: Saving; Game 2: Investing, etc.) Be sure to comment which one you like the best out of each set of two -- you will help determine the winner! Criteria for the best article is somewhat subjective, but you can use these factors as a guide: 1) practicality of the post 2) how interesting/provocative/unique it is, 3) the "personal-ness" of it and 4) its impact on net worth.

Here are today's games:

GAME 13

21 Ways To Make Extra Money From Home (Ways) - Here are 21 ways to earn extra money. Some are easy, some are difficult. Find the jobs that match your lifestyle and go make some extra cash!

VERSUS

Do a financial self appraisal (Self) - I just submitted my self-appraisal at work. Even though it is one among the least favorite parts of my job, I can see how a self-appraisal helps me set some aside to think about what I excelled at over the previous 12 months and what improvements need to be made over next year. It makes me improve constantly and do a better job year after year. I am improving myself for the company’s benefit (mostly). But how many of us do a self-appraisal for our own good. Isn’t it our aim in life to be better than where we were last year? Financially, spiritually and physically?

I've been discussing foreign freedom investing for a decade now. In the spring of 2010, I used the term "Ring-of-Fire" to describe countries with a high debt and deficit and suggested avoiding them. A year later, I revisited that advice and counseled investors to continue tilting toward specific countries. Now at year end, I will review how freedom investing fared in 2011 and in the decade since 2002.

The Heritage Foundation has released its 2012 Index of Economic Freedom. Since 1994, the Heritage Foundation Index of Economic Freedom has used a systematic empirical measurement of economic freedom to evaluate countries worldwide. The index clearly shows that economic freedom and higher rates of long-term economic growth go together. Investors can use the study to select countries for their foreign stock allocation.

The foundation defines economic freedom as "the absence of government coercion or constraint on the production, distribution, or consumption of goods and services beyond the extent necessary for citizens to protect and maintain liberty itself. In other words, people are free to work, produce, consume, and invest in the ways they feel are most productive."

This year's changes were discouraging. Paul A. Gigot, the Wall Street Journal editorial page editor, wrote in the foreword to this year's report, "The financial panic and Great Recession have sent the march of freedom in reverse, and the policy responses to both events have done little to arrest the retreat." If all that Keynesian spending really did any good, you would expect countries that increased government spending to have better returns as a result. But they did not.

I took 14 of the developed countries with the largest investable markets and compared their current economic freedom score with their returns over the past 1, 3, 5 and 10 years. Only five of these countries are ranked in the free category: Hong Kong, Singapore, Australia, New Zealand and Switzerland. Canada moved from free to mostly free this year. Two years ago the United States fell out as well.

The nations in my analysis included 16 different developed countries representing 85% of the world's investable markets and 98% of the developed countries. Freedom scores ranged from #1 in freedom Hong Kong at 89.9 to #92 ranked mostly unfree Italy at 58.8.

The spread of freedom scores among these countries was more than 30 points. And the trend line for the last year showed an average extra return of 0.36% per freedom point. The 3-year, 5-year and 10-year trend lines between freedom and investment return were similar or better. Over the past decade, countries with freedom have experienced annual investments returns 6% above the EAFE index and 10% above countries like Italy.

This correlation is not accidental. As Italy's government spending has increased, so has its corruption. Big government is not the answer to corruption. It is largely the cause. And excessive government spending does not encourage the private sector. It competes with the private sector.

The sovereign debt problems of the United States and the European Union affect several of these freedom scores. Nevertheless, we think it is important to look at a country’s debt and deficit as well. Some countries actually follow Keynesian advice and have built up a reserve fund specifically for the lean years of recession. Others simply use his ideas as an excuse to spend even more in the lean year than their normal irresponsibility.

We believe this is one of the times when your asset allocation should tilt foreign and overweight the handful of countries with high economic freedom. Although many economists acknowledge that freedom matters, few investment strategies take advantage of this fact.

February 17, 2012

Today we're going to get into the heart of the cruise as we leave home (Michigan) and head for warmer climates.

Thursday, January 12

I took a day off work today to help with packing, planning, house details, etc. There's so much to do when you're going to be away from home for almost two weeks!

Friday, January 13

Yes, we left for our trip on Friday the 13th! ;-)

It snowed five to six inches last night/early this morning, so I found myself snowblowing in the morning to clear our drive. Boy was I anxious for warmer temps!

We had debated whether to fly from Grand Rapids or Detroit on our trip. Grand Rapids was an easy commute to the airport (10 minutes) and meant we could leave our car parked at home (a friend could take us to the airport). But it was more expensive. Detroit was a two-hour drive and meant we had to leave a day earlier (we would stay overnight at a hotel and get to leave our car parked there for free while we were gone. We'd done this when we went to Disney and it worked out great.) Plus you never know whether or not you can drive two hours in Michigan in January -- the weather might do you in. But Detroit was a cheaper flight (roughly $100 per person cheaper) plus it was a direct flight -- no chances of missed connections.

Ultimately we decided to leave from Grand Rapids. It was the wrong choice.

There weren't really any delayed flights due to the weather, but our incoming plane had some sort of trouble and was late arriving. Then we waited FOREVER on the tarmac while the time slowly crept by. Then we had to go for de-icing. By the time we took off, only a miracle would help us make our connection. In the end, we missed it by 10 minutes. And no, Delta didn't hold it for us. Ugh.

As I mentioned in an earlier post, my wife asked for compensation and we received $12 each ($48 total) in meal vouchers from Delta. We ate dinner then caught the next flight to Ft. Lauderdale. When we arrived, only two of our three bags had made it. So we had to go fill out the proper paperwork, which further delayed us. Thanks again, Delta.

One thing to note here. We checked three bags, which should have cost us $25 each. But since I had my new Gold Delta SkyMiles® Credit Card from American Express, they were free. This saved us $150 round-trip -- a nice amount. Also, I believe you're supposed to pay for the flight with the card in order to get the bag fees waived, but I didn't. I paid for the flights with my Chase Sapphire card (for which I'd received $625 in flight credit). But when I checked in at the airport, I used my Delta card to login, which then granted me the savings.

Since we were three hours late by this time, our shuttle from Ft. Lauderdale to Miami cost us an extra $15 (late night fee). We arrived in our downtown Miami Hampton Inn close to midnight (FYI, I paid for the hotel with reward points, so the first night was free).

Saturday, January 14

Ahhhh, the warmth of Miami. ;-)

We left for vacation a day early for two reasons. First, you never know when a freak snowstorm will hit and cancel all flights. So if you have to be somewhere tomorrow and all airports are closed today, you miss the ship and it costs you a fortune (we had decided to forego traveler's insurance.) By building in an extra day, you have a cushion in case this happened. Second, why not spend an extra day in Miami? A January day in Miami is better than a January day in Michigan, right?

It was a warm day (roughly 70 degrees) and we spent it seeing different parts of Miami. We took the tram that runs downtown (very nice and free) and walked along the water, visited some shops, and generally just enjoyed being outside (knowing back home they were digging out of a snowstorm.) We also hit the pool a bit to work on our base tans, and went to Publix to buy a case of water ($4) which we took with us on the ship the next day.

Around 6:30 pm that night our bag FINALLY arrived (we were starting to worry about it.) Thanks, Delta, for stressing us out when we were supposed to be relaxing.

Sunday, January 15

We were up early and had breakfast at the hotel. Hampton Inns are great IMO because they are nice, clean, moderately priced, and have great amenities like free breakfasts (which are decent) and free wi-fi.

We skipped the hotel shuttle to the port of Miami (they wanted $8 per person or $32 total for us) and took a cab for $20. We arrived around 11:45 am (you could get onboard at noon), dropped off our bags with a handler, and walked into the port building. We showed our documents, filled out our forms saying we had no colds/flus, and went through security.

Once we cleared security, there were two paths. Most of the people went into huge lines similar to what you see at an airport when there's a rush to check in by a large number of people. They had to stand and wait to check in. Because we had a suite, we were escorted to a VIP room with drinks and snacks. We sat at a desk (no line!) and the clerk checked us in quickly. We then sat on the couches and visited for ten minutes or so. Then a Norwegian crew member came in and escorted us to a holding area for the first group to get on the boat. We walked right past all the people who were waiting to check in the "normal" way and into a preferred boarding section. This was the first of the extra privileges we were to receive because of the room we booked.

FYI, I hope I'm not sounding snooty (and don't in the future either.) I won't be telling you about the special service we received to brag or to put other people down. Quite frankly, we ourselves were surprised by the level of service we received (remember, we had never cruised before and knew NOTHING about the extras that came along with our room -- we just "lucked" into them). Of course, we paid for those extras (remember, we had paid a pretty good amount for the two-bedroom cabin we had), likely much more than what most paid. But I do want to share with you what we got so you get a complete flavor of the trip we had.

Ten minutes later the first groups to get on were: 1) us (the people who had suites and "higher-level" rooms) and 2) members of Norwegian's frequent cruising program who had achieved a certain status (what status, I don't know.) Once we got on the ship, group #1 was taken to the 13th level and sat in a concierge lounge. Group #2 was left to wander the ship, I suppose. The rooms were not ready yet, so perhaps they went and ate at the buffet. I don't know.

We waited in the lounge for ten minutes or so and met our personal concierge, David. He then took us across the hall to Cagney's, the Norwegian Dawn's steakhouse. Cagney's is one of the upper-level restaurants on the ship which, I believe, costs $25 per person to eat at (yes, it's in addition to the fee you paid to cruise to eat at certain restaurants.) We had a complimentary lunch there. And, as we found out when we got to our room, the suite we purchased enabled us to eat there every morning for breakfast and lunch for no additional fee. We took advantage of this several times as eating there was much more upscale and quieter than the main buffet area.

After lunch we went to our cabin (which I showed pictures of on the last post.) The rest of the evening was getting settled in -- unpacking, walking around the ship, safety training (of course), eating (of course!), and enjoying the warmth (out on our balcony) and fun (we went to a comedy show that night.) Oh, and our suite gave us special seats in the theater, so we had great spots waiting for us every night.

Needless to say, we went to bed happy that night.

That said, we did have moderate (4 to 7 foot) waves and cloudy weather that night (and the next couple days). We didn't get sea sick, but it was cool (70 degrees and windy) and rocky this evening and wasn't what we'd pictured as a calm, warm vacation. The cause was a cold front in our area. Lucky for us, it moved through over the next couple days as it went north and we went south.

That's it for this post. Come back next time to see how our first full day at sea and first on-shore experience went. For now, enjoy these pictures from the trip -- our views pulling out of Miami. (click pics to enlarge.)

Here we go with the first round of Free Money Finance March Money Madness (to follow all the action click on my March Money Madness category link and scroll down to read all the posts involved in this subject.)

I've listed each "game" (one post versus another) in segments along with the wording provided by the author when the post was submitted. I've also listed a keyword after each post title to make it easy to vote (as a made-up example, you can just comment: Game 1: Saving; Game 2: Investing, etc.) Be sure to comment which one you like the best out of each set of two -- you will help determine the winner! Criteria for the best article is somewhat subjective, but you can use these factors as a guide: 1) practicality of the post 2) how interesting/provocative/unique it is, 3) the "personal-ness" of it and 4) its impact on net worth.

Here are today's games:

GAME 11

I Am Quitting!!! (Quitting) - This was the happiest post that I have ever written!!! Last July I took the leap into self employment after hitting my target income goals months earlier than expected. I also needed to recapture my sanity after nearly a year of 100 plus hour work weeks due to balancing a day job and my growing online endeavors. I can't vouch for my sanity's recovery yet, but this leap of faith has ended up being the best financial decision of my entire life. Thank you to all of my supporters that helped me get here!

VERSUS

10 Ways to Get Ahead at Work (Ahead) - Whether you're looking for a promotion or to get a better job, there will be at least one or two tips you can use in this post to get ahead at work. Light on theory, the post references practical strategies for interviewing, training, requesting a pay raise, valuing your benefits, quitting your job gracefully, and more.

GAME 12

12 Wedding Ideas to Fit Your Budget (Wedding) - Believe it or not you can have a gorgeous wedding without a 5 or 6 figure price tag. It just takes a little creativity and determination. These are 12 ideas to get you started!

VERSUS

Retirement Portfolios for Those Drawing an Income (Drawing) - The usual viewpoint of investment advice is that of someone twenty or thirty years away from retirement who wants to accumulate a capital for retirement. Here I instead focus on somebody who is retired and wants an income.

Once a month I update my net worth in Quicken (by adding in any expenses, updating my fund prices, etc.) And once a year I give you all a review of how I did the previous year. This is my wrap up for 2011. Here are the highlights:

My net worth ended 2011 at an all-time high, up a "decent" 6.98% versus the previous year. Note that this includes my entire net worth -- including the value of items that didn't go up during the year (like my house, my cars, and cash investments), which weren't inconsequential in total value. This compares favorably to the market (S&P 500), which was flat. My gains were fueled by my savings throughout the year.

I had record net worth highs for the first four months of 2011, with my peak at the end of April. From there the market headed down, down, down with every month lower than the previous one until October. In the end, my net worth on December 31 was the second-highest month end net worth of the year.

This year's performance brings the compound annual growth rate of my net worth to 14.43% over the past 15 years when I started tracking it in 1996.

This year I had my third-worst percentage gain in net worth though it was the seventh-highest in absolute dollars gained. Overall, my net worth is up 66.6% since the end of 2008 (which, BTW, was the only year I've had a loss in net worth.)

Overall, an "ok" year. If anything it reminded me to keep my savings rate high and keep plugging away. To make this happen, I'll keep doing the same old things: growing my career, spending much less than I earn, saving a ton, and investing in index funds. Hopefully the market will help me out at least a bit in 2012. ;-)

By now the bills from Christmas spending have arrived, and many households are burdened by credit card balances that seemed so promising when the application arrived in the mail. Unfortunately, none of them have a feature stipulating you don't have to pay.

Lots of articles steer you to the best credit card by categories--one if you want airline miles, another if you need to transfer a balance and a third if you are looking for the lowest interest rates. This is not one of those articles. The millionaire mindset does not want airline miles and doesn't carry a balance. And the sooner you start thinking like a millionaire, the sooner you will become one.

Principle number 1: The credit card company's job is to make as much money as possible, and your job is to keep as much money as possible. They are very good at their job. Principle number 2: The defaults should all be in your favor. Avoid any credit card that requires you to work against them. They will win, and you will forget to do some important piece of work.

Putting these principles into practice, here are the five key features to look for in a credit card.

No annual fee. No amount of rewards and bonuses can make up for an annual fee. If you start $75 in the hole, you have to spend $7,500 and get 1% cash back just to break even. No annual fee for the first year isn't enough for whatever rewards are offered.

As much cash back as possible on everything I purchase. Forget every other system of rewards. With immediate cash back, you are definitely getting something valuable. And you don't have to decide to use the rewards; they are simply deposited in your account. In the best of all scenarios, they are deposited into a savings or brokerage account.

An immediate 1% cash back on every purchase is the minimum you should settle for. The best I have seen is if you can get 2% on everything. Many cards entice you with 3% or 5% on specific purchases during certain months within limits when you remember to register. I'm too busy running a business to deal with such foolishness. Just give me the money. Don't make me ask.

Purchase protection, free extended warranty and return protection. If you've had a store that has not given you a fair deal and then given you a hard time, having made the purchase with a credit card can often help. If the original U.S. warranty is 5 years or less, some cards increase the warranty by up to a year. And credit cards often allow you to return anything purchased in the United States within 90 days from the date you bought it regardless of a store's policies.

In addition to these features, making purchases with a credit card can save you a tremendous hassle because a process is in place for disputes. We bought a digital camera that was supposed to come with a larger memory card as part of a promotion. But when it was delivered, the card was not included. The store refused to honor the original agreement until we disputed payment on the entire purchase. After that the memory card was sent immediately and our dispute was resolved.

Onetime-use credit card numbers. This feature, called "ShopSafe" by MBNA, allows you to create a unique temporary credit card number every time you make an online purchase. This number acts exactly like your real credit card number except it has a lower limit and a quick expiration date. For example, if you are purchasing a $35 item, you can create a temporary number with a $40 credit limit that expires in two months.

Merchants won't know the difference, but if their lack of security compromises the number you use, the thieves will find themselves with $5 more credit on a card that may already be expired.

Easily downloadable information. Entering every transaction into a budget by hand is a great way to create good spending habits. But once those have become routine, it is still wise to know what you have spent without all that manual labor. Many credit cards allow you to download a file and import it directly into Quicken or other budgeting software. Purchases from your usual vendors are automatically coded into their proper budgeting categories. Only new vendors need to be assigned a category.

My primary credit card had all of these features, including 2% cash back deposited directly into my investment account at the end of each month. Unfortunately, that card is no longer available, and the company recently reduced the cash back to 1%. The Fidelity American Express card, however, offers 2% cash back deposited directly into your Fidelity account. I have applied for that card. Here are some other cards that come close to approximating that deal:

With no annual fee, the Chase Freedom Visa returns 1% of all purchases. Like many other cards, it has a 5% limited cash back on rotating categories if you remember to sign up every quarter. The best gimmick is that they offer $200 cash back through a limited-time promotion if you have excellent credit and spend $500 in the first three months. Remember, it is just a come-on to get you to sign up. But for $200 it is at least worth the time.

Some consumer credit card advocate sites may receive cash payments if you sign up for a credit card through their website. Any recommendation comes with the caveat that to maximize profits, credit card companies remove the best features. But to stay competitive, others add new features. This competition is OK, but it means you must verify these recommendations to see if they are still reasonably good.

Credit card companies know that people have an irrational loyalty to their first card. That's why they market college students so heavily. You may feel attached to your current credit card, but believe me, the credit card company feels no such allegiance to you.

I started grad school in 2007 and by the time I finished in 2009, I had about $72,000 in federal loans (6.8% interest) and $4,500 in grad plus loans (8% interest). I started working at a 501(c)(3) organization shortly after graduating.

I have been slowly chipping away at the federal loan since November 2009 at an income-based rate. This amount has varied depending on my salary and marital status, but the required payment has never been above $120 month. I could afford to pay more, but I'm not because supposedly if you make income-based payments for a period of 10 years while working either at a 501(c)(3) or for the government, then your remaining student loans are forgiven. I was discussing this with one of my friends from grad school who is also working for a 501(c)(3) but is not doing income-based repayment because they system has not been tested (the whole 10-year forgiveness thing is relatively new).

The current balance on my federal loans is about $70,000 and if I wasn't enrolled in the income-based repayment plan my monthly payment would be around $950. Given my field of work, it is likely that I will continue working with 501(c)(3) orgs or the government for the rest of my career, but nothing is certain. Should I continue income-based payments, hoping that after 10 years my loans will be forgiven, or should I aim to pay off all my loans? I went into grad school expecting to have to pay them off, and if they aren't forgiven after 10 years I'll be paying a substantial amount of interest. I should add that I paid off the grad plus loan because it didn't qualify for the 10 year rule and the interest rate was much higher than any of my investment returns.

February 14, 2012

The following is excerpted with permission of the publisher John Wiley & Sons, Inc.(www.wiley.com) from Risk Less and Prosper: Your Guide to Safer Investing by Zvi Bodie and Rachelle Taqqu. Copyright (c) 2012 by Zvi Bodie and Rachelle Taqqu. Sidebars and tables are in red. This is a continuation of part 1.

Step 4: Assign a Timeline

Step 4 should be a very quick stride to take. Tie your goals to deadlines. If you can’t name a specific date, or if it makes no sense to do so, choose a range instead. Without tying down a timeline, you have nothing but a wish-list, blowing in the wind. From a psychological standpoint, too, deadlines add the crucial element of motivation.

Compare Julia and Sue’s education investment plans. Julia acknowledges that she plans to invest for her children’s education. “For me, educating my children is a big reason for investing today,” she says. She leaves it at that, open-ended, although she surely knows her children’s ages and expected times of graduation from high school.

Sue, on the other hand, shares Julia’s goals but she’s already focusing on specific dates. Listen to the way a deadline concentrates the mind and brings a goal closer to fruition. “Now that my oldest son has started college, I have become newly aware that it will only be ten years before my youngest is ready for college,” Sue says. “Three years before she starts, my son will graduate from high school. If they both go to college, as I expect, then we’ll have one year when we need to help out with two different tuition bills. And we have tuition bills to help out with right now--and for the next four years--for my oldest. So we are keeping our eyes on the next four years, as well as on the period that’s seven to fourteen years away.”

Julia and Sue have children who are in elementary school. As long as Julia’s thinking floats timelessly off-calendar, it will remain vague. By contrast, Sue has been forced to attention by having an older child in college. She has set two separate time frames. The second is far in the future, surrounded with uncertainty, but it has become much more vivid in her mind. As a result, Sue is poised for action but Julia is not.

Step 5: Consult with Key Partners

Your goals are the mainspring of your investment plan. So, unless you lead a solitary existence, it’s worth consulting with the key partners in your life to reach consensus about the financial goals you share.

Often, goals don’t get formulated well because they conceal unexpressed conflicts. One spouse may want to retire early, but the other may have entirely different intentions. One may wish to travel during retirement, the other simply to be near family. One may wish to fund a child’s entire education costs, but the other may insist on having the child assume more responsibility.

Difficult subjects don’t end there. Discussions about relocating to a new city or caring for elderly parents can be especially prickly. Other family members’ opinions may bear considerable weight depending on the situation.

This is not the stuff of finance, but it’s a matter that you can’t afford to overlook. If you take this target practice together with important partners in your life, you may get halfway to consensus and beyond.

Step 6: Tally Costs

The next step is a critical one--attaching a price tag to your goals. Money talks. Completing this exercise can finally catapult your dreams into planning terrain.

This can be a challenging research project, but you don’t have to let it spin out of control. There are plenty of efficient shortcuts. Check out the abbreviated “cheat-sheet” we’ve added to help you complete your initial research quickly. Later, you can return and add detail as you require.

One thing you won’t be able to predict is future inflation (or deflation), so let’s be clear: the numbers you are assigning are in today’s dollars. In subsequent chapters, we’ll talk more about how to align “today’s dollars” (or “real” dollars), with the actual (or nominal) costs.

As you conduct your resource analysis, extract the cost of your basic needs as well as your wants. The line between them, in today’s dollars, brings us back to your bright line of defense from risk. It’s the minimum you must be assured of having when the time comes to spend--and, again, it signals how much you need to have in safe investments.

Goal: Higher Education; Information Resources: Websites of individual colleges and universities; family conversations about what level of funding you plan to provide; IRS Publication 970 (“Tax Benefits for Education”)

Goal: Retirement; Information Resources: Use your current consumption as a benchmark; your most recent income tax return; website of the Social Security Administration; website of AARP

Now that you’ve reached the end of this targeting exercise, you’re ready to consolidate your results. On one sheet of paper, list your goals, the resources they will require, their priority, and estimated timing. The six-step exercise toward “IMPACT” can help keep longer-term goals in focus alongside more imminent ones. It also allows you to visualize--and eliminate--potential conflicts among your goals. For instance, too many short-term goals with too high a price-tag may not be feasible. Seeing them side-by-side in your list might set you rethinking your priorities and timing to better effect.

Hold on to your outline. It’s not just a baseline for you to return to in future years. It’s a travel guide to keep your destinations in clear and constant view.

Defining Success

Establishing financial goals is a necessary starting point for all personal investors. But in the goal-based investing approach that we’re advocating, your goals not only set the table--they determine the menu. And they also provide the best rating criterion imaginable.

With all the noise in the marketplace about performance, it’s easy to get distracted from this fundamental fact. The standard of success is not a comparison with a market index or composite. These work well for evaluating professional money managers. But they fluctuate constantly and serve only to weigh your results against various market averages. When it comes to judging your own personal investment performance, it’s your goals that make the most meaningful benchmarks. The proof of the pudding is in the eating. And the definition of success lies in the achieving.

Here we go with the first round of Free Money Finance March Money Madness (to follow all the action click on my March Money Madness category link and scroll down to read all the posts involved in this subject.)

I've listed each "game" (one post versus another) in segments along with the wording provided by the author when the post was submitted. I've also listed a keyword after each post title to make it easy to vote (as a made-up example, you can just comment: Game 1: Saving; Game 2: Investing, etc.) Be sure to comment which one you like the best out of each set of two -- you will help determine the winner! Criteria for the best article is somewhat subjective, but you can use these factors as a guide: 1) practicality of the post 2) how interesting/provocative/unique it is, 3) the "personal-ness" of it and 4) its impact on net worth.

Here are today's games:

GAME 9

Permanent Frugality is Good for the 99% (Occupy Wall Street in Your Everyday Life) (99%) - Occupy Wall Street got a lot of negative attention from the PF community that has worked very hard to get where they are financially. Putting those personal opinions aside, Occupy Wall Street was about waking up as an American people and my post shows the regular person that they can question their role as "consumer". Whether you didn't like some the of the people out there on the streets, OWS was about waking up and questioning conventional, spoon-fed wisdom. Hey! Isn't that what personal finance is all about?

VERSUS

Living Well on Less Than $10,000 a Year: Habits of Skilled Visa Workers (Skilled) - This is an unusual tale of living under $10,000 a year. The high skilled visa workers while staying in US live extreme frugal life to save money for future, a future they'll live in their home countries. The article talks about this community and their practices, to motivate you towards saving.

GAME 10

Creating Wealth – Avoid these 3 Mistakes (Mistakes) - Making money is hard enough. But it is also critical to avoid making the blunders that can result in you losing it all. Here are the 3 big mistakes I've seen that people fall victim to and what you must do to safeguard your hard-earned success.

VERSUS

30 Financial Moves Before 30 (Moves) - The following are 30 financial moves that all 20-somethings should consider. They are key financial milestone you need to do before you hit 30.

I ask this question because of a recent mailing I received. It was from an organization I support. They were inviting me to set up an automatic payment to them using either my credit card or through a direct transfer from my checking account (I got to name the amount as well as the frequency). I can see how the checking account transfer is a no-brainer for them (no fees), but how is the credit card? What makes the piece even more surprising is that the credit card option is the one that's pushed first -- the checking account option is listed second.

The wording they use says that by setting up contributions in this way I will save the charity money. Here's the wording in the letter they sent me:

Please take a moment to look at the enclosed (program name) form, which lowers processing costs and allows even more of your donation to go directly to work...helping people.

This idea is then reinforced on the enrollment form as follows:

Yes, I want to join (the program) so my gifts will go even further to help neighbors in need.

So is it possible that while there's a fee associated with giving via credit card that this fee is LOWER than processing fees associated with other forms of payment? Or do you think this is simply a ploy to get me to sign up with a program that makes giving automatic -- and thus the charity will get more overall? If it is a better deal for them, then it's a win-win situation. They save money and I earn a cash rebate!

In the past, I haven't done much giving via credit card. I gave some last year when the Chase Freedom card had 5% cash back on charitable contributions and I have always made some online contributions each year, but nothing with regular payments being deducted from my credit card. Then recently I set my church giving up to be automatically paid each week via credit card. It keeps me from writing an extra check each week and makes sure I give even when I'm not at church (like the two weeks I was gone on my recent cruise.)

What's your take on this issue? Is giving to a charity with a credit card (assuming you can pay it off when due -- which should be the rule for any credit card charge) a good or bad idea?

February 13, 2012

The following is excerpted with permission of the publisher John Wiley & Sons, Inc.(www.wiley.com) from Risk Less and Prosper: Your Guide to Safer Investing by Zvi Bodie and Rachelle Taqqu. Copyright (c) 2012 by Zvi Bodie and Rachelle Taqqu. Sidebars and tables are in red.

If you don’t know where you are going, you’ll end up someplace else. Yogi Berra

It seems a small order, asking you to list your personal financial goals. And, in fact, it is quite easy for most people who are asked by their financial advisors to complete the traditional.

Yet, developing a clear picture of your financial destinations can be anything but simple, especially when you try to push beyond vague generalizations to get into the specifics.

The Challenge

It’s the rare young person who wants to envisage a gray-haired dotage in a distant future; and it’s the rare individual who actually sets down cherished financial aspirations in writing.

Most of the barriers to goal-setting can be chalked up to a failure of imagination. No question about it: events that will take place in the future can be elusive--the farther away, the more unreal. It’s truly difficult to drum up interest in events that seem remote or unpredictable.

Take education. No matter how committed you are as a parent, it’s still taxing to foresee higher-education options for the young child whose future ambitions can’t yet be read. And--consistent with the common delusion that “everyone ages but me”--it can be hard to see past an ocean of time to admit that we will one day reach retirement age.

Shorter-term goals, too, have a habit of eclipsing longer-term propositions. If you suspect unspoken family disagreements around goals, you may shrink from articulating them to avoid strife. And we can even harbor dueling goals--without realizing they’re in conflict.

Since your goals will be driving your investment decisions, you want to get this part right. The more clearly you can picture your goals, the better equipped you will be to meet them.

You don’t have to get it perfect on the first try. The uncertainty of a long planning horizon doesn’t have to hold you back--it’s not a test but an opportunity to set the right direction and get you on your way. Start now. The momentum you create can help you recognize and resolve any conflicts that may be immobilizing you. There will be plenty of time to correct your course.

Try the “target practice” exercises in this chapter, and use them as tools to revisit in the future. A one-time bull’s-eye would be foolish, even arrogant, to attempt--as well as near-impossible. It’s a journey, not a single shot. The closer we get to the destination, the closer we need to be to the course--but at the outset, it’s the direction that counts.

Target Practice in Six Easy Steps

The secret to setting reachable goals is hidden in the details--the more specific the goal, the easier to pursue. And the most winning approach incorporates discipline and imagination in equal measure. Aim to visualize your destinations in bright colors and high resolution. After all, these are aspirations that you care about. But you also want to stick with goals that are achievable, so that you can turn them from wishes and desires into goals and plans. This is not the time for magical thinking.

In the exercise that follows, we’ll walk you through a “target practice” to help you out. Here are six easy steps toward setting your financial goals:

The exercise is organized for impact. To get started, lead with your imagination.

Step 1: Imagine Your Destination

You need nothing but a pen, some paper and an active mind. Write down all the material goals that are important to you. Beneath each goal you jot down, leave space for descriptive comments that highlight the centerpiece elements you’re seeking.

For example, if your goal is to purchase a new home, add the features you most want. In your descriptive sections, include a line or two about your principal purpose in choosing the goal. What’s the purpose behind that house you hope to buy? Are you looking for a better school district, or is it a need for more space that’s driving you?

What about retirement? What purposes do you have in mind? Most likely, you want to maintain your customary lifestyle even after you stop receiving a paycheck from your employer. Do you want to start an encore career? Do you plan to travel? In other words, give some thought to whether you plan to consume more or less than you today.

At this stage in your goal-setting, it is helpful to add clarity while subtracting unnecessary distractions. Focusing on your purpose along with your key requirements will help you do both.

You won’t be too surprised to see that the most popular financial goals are limited to fewer than a dozen broad categories. But this does not make cookie-cutters out of them. It’s how you color each goal that will make your list uniquely your own.

Most Common Financial Goals

Create an Emergency Fund

Retire at age 68

Start/build education fund for child(ren)

Buy, build or remodel a home

Maintain long-term care insurance

Maintain disability insurance

Plan a major vacation

Buy expensive items (car, boat, RV)

Buy a vacation home

Change careers

You’ll note that we haven’t included some frequently mentioned items like “setting up a 401(k) at work,” or “saving $100 every week,” which are better characterized as paths toward other, longer-term financial goals. If you are having trouble making this distinction, then the next steps in this target practice may help you separate your planned routes from your list of destinations. Remember, your list doesn’t have to be long.

There is one goal, however, that must appear on every list, whether you are sixty-four or twenty-four years old. And that’s the goal of retiring. Even if you plan to join the Supreme Court and work until age 90, there will come a time, no matter how much you love your work, when you’ll no longer be able to count fully on your income from employment.

Of course, the farther from retirement you are, the harder it is to paint yourself a clear picture. The imponderables are too many. Time, place, marital status, and lifestyle--these may all feel like enormous unknowns. If this small sketch describes you, don’t just shrug your shoulders and walk away. At a minimum, create a retirement placeholder. Adjustments can come later.

Early money packs a big wallop. The earlier you start, the earlier you can retire. But you have to act early.

If you started late or haven’t started yet, don’t be chagrined. Being late is better than being broke. There is no time like the present. Even Shakespeare’s Richard II knew what it was like to waste time when he lamented, “I wasted time, and now doth time waste me.”

Step 2: Monitor Your Progress

As you proceed with your targeting, remember that your list is sure to evolve. Some goals will drop off your horizon as you achieve them, others may change radically over time, and still others will sharpen in focus as they approach. This understanding takes the pressure off, since it allows you to work with rough approximations and to continue making adjustments as needed.

But it also underlines the value of a periodic review of your list of goals--perhaps as often as once a year. You’ll be reviewing your list to be sure it’s current, to make modifications if necessary, and to fill in your broad brush strokes with more detail and more intense colors when you can.

Step 3: Prioritize Your Needs

Not all goals are created equal. It’s important to distinguish high priority goals from others. Once you’ve prepared your list, take a moment to rank each item in order of importance. Don’t let indecision slow you down.

Unfortunately, it’s easy to confuse distant goals with low-priority ones. As a result, many people ascribe a low importance to retirement when it seems far away. But some far-off goals need close attention even if they are hard to imagine right now. Just because retirement may be a long way off doesn’t mean it can rank low on your list.

Here is a simple example of how priority rankings can help you focus on what’s most important.

Table 2.1 Sample Form for Setting Goal Priorities

Goal #1 Retire at age 67 -- Rank: 1

Goal #2 Build college fund for oldest child -- Rank: 2

Goal #3 Build college fund for younger child -- Rank: 2

Goal #4 Down payment for house purchase -- Rank: 4

One device that can help you avoid procrastinating when your deadlines seem distant is to ask yourself whether a goal represents a need--something you must have in order to live--or whether it’s something you want. Needs are the bare essentials: a roof over your head, clothing, food, water and what it takes to maintain good health.

Of course, the line between needs and wants, the non-negotiable essentials and discretionary items, can blur. Different people will answer the wants-or-needs question differently. Take good health and nutrition. One person will eat healthy food on a moderate budget while another may believe that expensive organic fruits and vegetables are essential.

Some things are essential for everyone. Everyone needs enough income to live on in old age. And it’s not just old age--each and every one of us may be forced to retire unexpectedly, whether because of the economy, poor health or family circumstances beyond our control. So retirement is a need, not a want, and this makes it automatically trump all goals in the list that line up in the “nice to have” column but don’t appear as “must-haves.”

If you are tempted to ignore retirement as a high-priority goal, remember too that catching up later will be hard to do. The setback will be even greater if you choose not to exploit any tax-deferred retirement accounts you may have at work, since these allow your money to accumulate tax-free until withdrawal.

The wants-versus-needs distinction is also a good way to set priorities within each of your goals. For each goal, try to distinguish your bare, minimum needs from the things you want but don’t strictly need. For an example, look at Julia’s attempt to distinguish her basic requirements during retirement from what she really would like her golden years to look like.

Need: Basic transportation; Want: New car every 5-7 years; travel each year

Need: Entertainment: Use the Public Library; Want: Theatre; concerts; movies

It helps to reality-test your results by picturing your future in as much detail as possible. Have you inadvertently skimped so that the minimal baseline you’ve described isn’t really feasible? Have you left out anything essential for health care or long-term care insurance needs? Or have you gone overboard in the opposite direction by including features you really can live without? This is a less likely concern, but one to think about too.

This distinction between needs and wants will point you toward your rock-bottom baseline--the level of future income your investments must safely yield. It is the bright red line of defense we described in Chapter One, and it will be a central consideration when you decide how to invest.

The following is the latest post in my "Reader Profiles" series. Each post in this series details the financial situation and challenges of an FMF reader. The purpose of this series is to help us all identify with people like us (in similar situations -- not all will be, of course, but eventually I'm sure you will find someone like you here), get to know the frequent commenters on the site, and hear some financial wisdom/challenges from people other than me.

If you're interested in contributing to this series, then drop me an email. The series seems to be very popular with readers and I need a steady stream of new ones to keep it going.

Next in the series is FMF reader SF. He answered my questions (in red below) as follows:

Please tell us a bit about yourself.

I am 29 (about to turn 30) and live in Southern California. I have a bachelors and masters degree in accounting and currently work as a forensic accountant. I have my CPA license in California and I am also a Certified Fraud Examiner. I got married about a year ago, my wife (age 30) has a bachelors in music and a masters in elementary education. My line of work is very stable, though my wife's isn't as stable because of the teacher troubles in the state of California. We currently have no children, but are planning on starting a family within the next couple of years.

Describe your financial situation (who works in your family, how your income is (general), how your expenses are, etc.).

As stated above, both of us are working. My salary is in the upper 60K range with bonus possibilities depending on productivity and other factors, accruing every quarter and payable in February. My wife is an assistant teacher at a private school and currently brings in around 20K, which is low for her education level, but the private school job should allow her to jump to a full-time position either there or at another school next fall with a corresponding pay increase.

Expenses wise, the biggest item is rent, coming in at 1125/month. Yes, this is high, but it also allows both of us to live very close to our jobs, cutting down on commute time and expenses and in our view, worth the extra money to get this location. I have about 11K in student loans remaining from my masters degree (bachelors was a full-ride scholarship, thank goodness) at 140/month, 6.8% fixed interest which I am paying 200/month on for now because after 4 years of on-time payments, it drops to 4.8% interest (and prepayments count towards running the clock faster). I also have a car loan from a new car I bought in mid-2009 at around 12.5K, paying 450/month for another 2 1/2 years. This loan is at 0% interest and the car is above water now, so prepayments to this loan aren't the highest priority. In hindsight, I probably got too much car, but I was single at the time and living with roommates, so I had more free cash flow. I plan on driving it until it falls apart, so once it's paid there won't be any new car for a while. My wife's car is paid off, but is old (1999, 140k miles) so we're saving up to replace that car, at around 6k right now. We plan on riding that car until either it falls apart (at which point we pay cash for the best used car we can find) or until we have enough saved to pay cash for a new car. She also has student loans (about 4k in undergrad, 41k for her masters, undergrad is at around 3%, masters at 7.25%, unable to consolidate the two because the undergrad is Canadian student loans).

We're practicing living on just my income for when we start the family. Right now, all of my wife's earnings go toward her student loans 1st (payments about 400/month for 25 years from a consolidation, we're paying 500/month which should let us pay it off in around 10-12 years, though I'd like to pay that off even sooner) and her replacement car fund 2nd. Once we have her replacement car, all her earnings will go to repaying her loans. We also tithe to our church 10% and I contribute 6% of my salary to my 401k which has a 100% match up to 1st 5% of contributions. Additionally, I put between 250-300/month into a Roth IRA. Currently the 401k + rollover IRA from previous job is around 45k, the Roth is around 4k. Emergency fund is around 2.5k (this is separate from the car fund) which I'm trying to increase by about 100/month.

What are the current financial issues you're facing (saving, paying off debt, etc.)?

The main issue we're currently facing is the replacement car for my wife. It could give out tomorrow, it could last another couple of years, but we're saving up to take care of that 1st. 2nd is reducing my wife's student loans. 3rd (maybe 2b) is boosting the emergency fund. I'm toying with the idea of either reducing or eliminating the Roth IRA contribution and rerouting it to the emergency fund buildup until I have at least 3 months of expenses saved up. I feel this is an acceptable move since with my 401k contribution/match, I'm effectively at a contribution of 11% of salary. Thoughts?

The other issue which will come up soon is when we start having children. We want my wife to be able to stay at home, but right now with all our expenses I can't cover her student loans on my salary alone, not until I finish paying off my car. She can do piano lessons and tutoring from home while taking care of the kids, but this income can be unpredictable. Not currently an issue, but one to look at down the road and keep in mind.

What are your plans for the future. (retire early, build your career, etc.)?

Currently for me it's building my career. My work is fairly specialized, so we will most likely be staying near the big cities to allow me to continue it, though we may reevaluate this down the road. My long-term goal currently is to be able to start my own business along those lines (it would be similar to the partner track of a law or accounting firm) or to become a partner in my current firm.

My general philosophy on personal finances is you are the one who should be most concerned about them. It is extremely unlikely that a "white knight" will come in and swoop you away from whatever financial trouble you may be in. Your friends and family care about your well-being, but you (and your spouse/partner, if applicable) are the only ones who can truly do something about your own situation.

Additionally, I'm a firm believer in knowing where you stand financially, even if it isn't good. If you have credit card debt, open up those scary credit card bills. They won't disappear just because the envelope isn't open. If you're investing, know what you're buying, even if that means you stick with index funds. Keep track of your expenses and you can plug those leaks in your budget that always seem to appear while they're small.

Finally, try to anticipate future situations and plan for them. For me, this is my car payment. My family situation has changed significantly since making that purchase and it's reduced our financial flexibility accordingly. I realize you can't anticipate or plan for every possible contingency, but keep an eye down the road for the obstacles you can see.

The fine people at TurboTax have given me four codes to give away for their TurboTax Premier Online 2011 product. The codes are redeemable at TurboTax.com and good for one free federal + state preparation and e-file with TurboTax Premier Online 2011.

If you'd like to win one of these, here's how it will work:

1. All you need to do to enter is to leave any comment on this post. Be sure to leave your email address (no one else will be able to see it) when you leave the comment.

2. At the end of this week, I'll select the winner at random and announce the winner on this post.

3. I will email the winners, get their contact information, and arrange for them to receive their prizes.

Since many of you are considering using tax software products this year, I'm re-running this piece from last year which provides some hands-on reviews of various products from FMF readers.

As regular readers are aware, I have been running a series of tax software reviews from readers. I was given free access by the software companies to their sites, gave away that free access to readers, and the readers agreed to use and honestly review the programs. In case you missed them, here they all are in one place:

The reviews were from seven different readers all with different life situations and tax issues. And yet they all (in general) came to the same conclusion: the programs are great for basic, uncomplicated returns, but not-so-great if you have any sort of issue that's considered "unique."

For taxpayers with straightforward returns, tax software gets the job done, at a fraction of the cost of a tax preparer. Most tax software programs are also adept at handling returns that claim common tax breaks, such as the deduction for mortgage interest and charitable contributions.

But this year's tax software review also revealed the limitations of these programs. Taxes have grown so complex that even those of us who don't invest in individual stocks, own rental property or run a small business could find ourselves in need of advice from a flesh-and-blood tax preparer.

The article then highlights two issues they discovered while testing the software -- converting IRAs to Roths and reporting miscellaneous income. Their conclusion on these:

If you converted a large IRA to a Roth last year, it may be worthwhile to consult with an experienced tax preparer.

You shouldn't have to upgrade to a premium software program to report a couple of hundred bucks you earned mowing lawns last year. But you may need to root around a bit to find the right place to enter this information.

Finally, here are their overall conclusions about each of the products:

As has been the case in past years, TurboTax provided the clearest instructions of all the programs we tested. However, if you're a longtime desktop user, you may want to consider making the leap to the online version. It's cheaper and updates automatically. In our test drive of the desktop version, we had to endure several updates, one of which lasted more than 10 minutes.

H&R Block At Home did a workmanlike job on our tax return — and costs about 25% less than TurboTax. Block has enhanced its data-import function, which lets you electronically transfer information from your W-2, mortgage statements and other documents, but it still lags behind TurboTax in this regard.

TaxAct continues to be the preferred choice for cost-conscious taxpayers. Its standard program is free. However, if you want any guidance, you'll need to upgrade. For that reason, it's best-suited for people with a good grasp of tax laws or those with simple returns.

My taxes are pretty complicated (and have been for several years) and that's why I use a CPA. I think that at some point things might become "common" enough that I'll be willing to tackle the time and expense of doing it myself, but for now I am quite content to have them do it.

February 12, 2012

Here we go with the first round of Free Money Finance March Money Madness (to follow all the action click on my March Money Madness category link and scroll down to read all the posts involved in this subject.)

I've listed each "game" (one post versus another) in segments along with the wording provided by the author when the post was submitted. I've also listed a keyword after each post title to make it easy to vote (as a made-up example, you can just comment: Game 1: Saving; Game 2: Investing, etc.) Be sure to comment which one you like the best out of each set of two -- you will help determine the winner! Criteria for the best article is somewhat subjective, but you can use these factors as a guide: 1) practicality of the post 2) how interesting/provocative/unique it is, 3) the "personal-ness" of it and 4) its impact on net worth.

Here are today's games:

GAME 7

High-Dividend Stocks (High) - This post reminds and illustrates to readers that investing in "safe," high-dividend stocks entails a lot more risk than the low-interest instruments (e.g., CDs, T-bonds) against which these high-yield stocks increasingly are compared. To make the point vividly, I critique a specific sales pitch and review the performance of AT&T stock during the summer of 2008. The overall point of the post is that investors need always to consider critically Wall Street's recommendations, understanding that, first and foremost, these are money manager marketing tactics, aimed at promoting Wall Street's prosperity.

VERSUS

Top 5 Things Newlywed Homebuyers Need to Know (Newlywed) - One of the first things newlyweds look to do with their money is purchase a home. Before jumping into such a huge commitment without knowing what to do, we came up with the top 5 things newlywed homebuyers need to know.

GAME 8

5 ways to slowly but surely become a millionaire (Surely) - The post offers five simple ways that anyone can use to become a millionaire in as little as 13 years and mostly on auto-pilot. The goal is a slow and steady rise to the millionaire club - no finance degree necessary.

VERSUS

Extreme Couponing Reality Check (Check) - Most of the articles written about the downside of Extreme Couponing aren't written by Extreme Couponers. My post is about all the stuff that gets left out when thinking about extreme couponing from my personal experience as an Extreme Couponer. I share the top 9 associated costs with extreme couponing---they're not all financial costs. Saving money is great, but what price are you willing to pay?